Chris Daly - Daly Gray, Inc., IR Jeff Fisher - Chairman, President and CEO Dennis Craven - Executive Vice President and CFO.

Brad Dalinka - SunTrust Nikhil Bhalla - FBR & Company.

Please standby. Good day. And welcome to the Daly Gray Public Relations’ Chatham Lodging Announces Third Quarter Conference Call. Today’s conference is being recorded. And at this time, I’d like to turn the conference over to Chris Daly. Please go ahead, sir..

Thank you, Tina. Good morning, everyone. Welcome to the Chatham Lodging Trust third quarter 2014 results conference call. This morning, before the opening of the market, Chatham result -- released results for the third quarter 2014 and I hope you’ve had a chance to review the press release.

If you did not receive a copy of the release or you’d still like one, please call my office at (703) 435-6293 and we’ll be happy to email you one, or you may view the release online at Chatham’s website, www.chathamlodgingtrust.com.

Today’s conference call is being transmitted live via telephone and by webcast over Chatham’s website and at streetevents.com. A recording of the call will be available by telephone until 1 p.m. Eastern on Tuesday, November 11, 2014, by dialing 1 (888) 203-1112, reference number 9622790.

A replay of the conference call will be posted on Chatham’s website. As a reminder, this conference call is the property of Chatham Lodging Trust and any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Chatham is prohibited.

Before we begin, management has asked me to remind you that in keeping with the SEC’s Safe Harbor guidelines, today’s conference call may contain forward-looking statements about Chatham Lodging Trust, including statements regarding future operating results and the timing and composition of revenues amongst others.

Except for historical information, these forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially, including the volatility of the national economy, economic conditions generally in the hotel and real estate markets specifically, international and geopolitical difficulties or health concerns, governmental actions, legislative and regulatory changes, availability of debt and equity capital, interest rates, competition, weather conditions or natural disasters, supply and demand for lodging facilities in our current and proposed market areas, and the company’s ability to manage integration and growth.

Additional risks are discussed in the company’s filings with the Securities and Exchange Commissions. All information in this call is as of November 4, 2014 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.

During this call, we may refer to certain non-GAAP financial measures, such as EBITDA and adjusted EBITDA, which we believe to be common in the industry, and helpful indicators of our performance. In keeping with SEC regulations, we have provided and encourage you to refer to reconciliations of these measures to GAAP results in our earnings release.

Now, to provide you with some insight into Chatham’s 2014 third quarter results, allow me to introduce Jeff Fisher, Chairman, President and CEO and Dennis Craven, Executive Vice President, CFO. Let me turn over the session to Jeff.

Jeff?.

Thanks, Chris. Good morning, everyone. I hope you are as pleased as I am that we started right on time because once I start to listen to that music, I realized that Craven’s new selection needed to dealt whether in any event. We are happy to, of course to be reporting a strong quarter here.

It’s been another productive quarter with outstanding results, the acquisition of a new Hyatt Place in the thriving Denver-area of Cherry Creek, a very successful $150 million equity offering and the announcement with our partner, NorthStar, we will be acquiring another portfolio of 52 hotels for approximately $1.1 billion, including four hotels that Chatham will be buying outright for $107 million.

We expect that deal to close within the next couple of weeks. Our results for the quarter continue to validate our strategy to own the best assets in the fastest-growing markets in the country with the highest barriers to entry.

When you compare our portfolio RevPAR of $142 for the quarter, with an average daily rate of $161 in the select service hotels, I’ll remind you, to other lodging companies including full-service REITs. You get a very good understanding of the quality of the portfolio we’ve carefully assembled.

It’s a portfolio that’s been built based on selective acquisitions in high-growth markets driven by business segments. They are experiencing high growth within the economy and within those submarkets and our focus has been, markets driven primarily by technology, oil and gas and medical services.

As we make acquisitions going forward, we expect to primarily be located within those markets and we use of course, our market knowledge of owning an Island Hospitalities market knowledge from operating within various markets around the country and other hotels within those markets to understand the market dynamics we think very, very well.

With high absolute RevPAR, our best-in-class manager, Island Hospitality, further enhance our already strong return on investment, with aggressive management generating the best operating margins of all lodging REITs.

2014 has been a strong year for us and the third quarter gains have been outstanding with EBITDA and FFO jumping 82% and 86% respectively. Since 2011, we've grown FFO per share by approximately 30% per year, third highest among all lodging REITs and best among the four REITs on public since 2010.

We feel strongly that the favorable industry fundamentals of 2014 will continue into 2015 and 2016. And we expect to grow EBITDA and FFO at a similar rate in 2015, which again is projected to be among the highest of all lodging REITs.

When you look at our 30 hotels, approximately 90% of our portfolio is located in the top 25 MSAs and 72% of our portfolio is located on the West Coast and the Northeastern U.S.

Our key differentiation for our portfolio is we have a significant presence out West, with approximately 46% of our hotels located in key, West Coast markets which continue to be one of the highest growth markets in the United States. We expect that trend to continue well into 2015 and beyond.

As I spoke earlier, our portfolio wide RevPAR of $142 is really strong for a portfolio comprised of premium-branded, extended-stay and select-service hotels, especially given the fact that we don't own any hotels in New York City.

In the quarter, we saw our RevPAR rise 10.5% for 29 hotels, excluding the Hyatt Place in Cherry Creek because it was not open until October 2013. Absolute RevPAR was $142 on occupancy of almost 87%, at an average daily rate of a strong $161. The RevPAR growth of 10.5% was driven by an increase in occupancy of 2.8% and an increase in rate of 7.5%.

Within our markets, occupancy continues to climb up 2% to 83%, a sign that demand continues to grow. And since our hotels are typically the strongest brands in those markets, we stand to benefit most.

Island Hospitality has grown market share approximately 1.2 points in 2014, which is noteworthy given the fact that hotels in our competitive sets have much more occupancy to gain since again we’ve got the stronger brands in the set.

So on relative basis when you measure market share, those other inferior brands will actually pick up more share, as occupancy rises. Nonetheless we are getting market share gains and all of that should lead as we move through the cycle into even stronger ADR growth, which of course with our operator means even better margins moving forward.

We saw a strong growth across our portfolio with 15 of our 30 hotels posting double-digit RevPAR growth in the quarter. And interestingly, four of the six initial Homewood Suites hotels saw double-digit RevPAR increases. Again, some of the other markets that are not the prime coastal markets in the U.S.

are obviously picking up their growth rate and you’ve seen that with other hotel REITs that have reported earnings already. RevPAR in our recently acquired Silicon Valley portfolio was up 12.8% for the quarter to $184, driven by occupancy growth of 2% to 92%.

Of course, you got to remember those are all Residence Inns and an increase in rate of 10.5% to $199, some real good performance obviously. Silicon Valley is the epicenter of robust high tech job growth.

And with that, many of the best technologies in the country of course are continuing to grow, continuing to take down new office space, building larger headquarters. Office parks are expanding, even though there is also expansion by those high tech companies in San Francisco itself.

So I just came from there a couple of weeks ago and I’ve got to tell you the expansion of not just incubator or new startup companies, but by the normal names whether it’s Applied Materials, whether its Google, whether its Hewlett-Packard event we’ve got -- had we see expansion in their employment base, and obviously hotel business particularly in our Residence Inns stems from that kind of expansion.

The DC area is beginning to show signs of life with both our DC market and our Tysons Corner, Virginia market seeing RevPAR growth more than 10%. Of course part of that is the result of easier comps from last year, but nonetheless the comp sets themselves are growing as well at that rate. So, feeling a little better as we move forward there.

The converted DC Residence Inn continues to gain traction also in the market with the strong RevPAR index of a 110 as compared to its highest index as a double-tree, which was a 106 in 2012. So we think that the markets will continue to churn higher and look forward to further growth, as we move down the road.

With topline revenue growth exceeding our expectations, our hotel EBITDA margins advanced a very strong 640 basis points to 46.5%, the highest among all lodging companies, an evidence that our strategy of acquiring high quality hotels and pairing them with the great operator will produce great results.

When looking at our comparable 29 hotels, hotel EBITDA margin advanced 210 basis points, still a strong result. Profit flow through in the quarter was a strong 63% and we expect that trend, as I said, to continue as ADR rose over the next several years.

We’ve got a best-in-class portfolio through our affiliation with Island, with three decades of experience investing and operating primarily select service and upscale extended stay hotels. We’ve got a unique understanding of how to generate significant value in the space.

Affiliation allows us as I mentioned earlier the properly diligence acquisitions, given our knowledge of most major markets across the country and allows us to leverage Island’s relationships to drive operating costs lower and make quick decisions regarding revenue management and revenue segmentation, all of which maximizes topline hotel revenue.

And as Chatham makes those acquisitions, Island has shown over and over again its ability to produce topline improvement beyond what the comp set results are and of course then drives that top line improvement right through the bottom line.

So to finish off here before I turn it over to Dennis, we’re building off a great first and second quarter and the third quarter. We produced one of the highest RevPAR growth across the lodging industry. And we’ve generated the highest operating margins in the business.

We almost doubled our third quarter EBITDA and FFO over the 2013 third quarter and our absolute FFO per share ranks as one of the highest among all lodging REITs.

We expect these trends to continue in 2015 but for us our growth should continue well beyond 2015, just with the embedded growth that will derive from the expansion of our four Silicon Valley Residence Inns. I mentioned an occupancy rate of 92% in those hotels that’s pretty telling in and of itself.

It tells you that there's plenty of room to add rooms within those facilities and to fill those rooms up the day we open at ADRs that are approaching $200 per night and then some in Mountain View. So we see a strong ROI from those expansions.

Of course, we already own the land to be able to build an infrastructure, to be able to build those rooms and that will be a strong story for us over the next two to three years moving forward. With that, I’d like to turn it over to Dennis..

Thanks Jeff. Excited to be with everyone today and to talk about the all-round great results. We do look forward to meeting and seeing many of you guys over the next few days in Atlanta for the NAREIT conference.

For the first quarter, we reported net income of $8.7 million or $0.31 per diluted share, compared to net income of $2.5 million or $0.11 per diluted share over the 2013 third quarter.

The primary driver behind the significant net income increased was the incremental acquisitions we’ve made since the 2013 third quarter with the Residence Inns in Silicon Valley, the Residence Inns in Bellevue, Washington as well as the SpringHill Suites in Savannah, Georgia.

And additionally, we had a decrease in the acquisition and acquisition-related costs of $1 million in the 2014 third quarter compared to the 2013 third quarter. It was record third quarter RevPAR growth for Chatham with RevPAR growing 10.5% in the quarter for the comparable 29 Chatham hotels.

Our RevPAR growth was pretty consistent throughout the quarter with monthly gains ranging from 9.5% to 11.6%.

We saw double-digit RevPAR increases across half of our markets and although Silicon Valley is a significant contributor to our overall results, the remainder of our portfolio is also forming very strongly, excluding those four Silicon Valley Residence Inns -- excuse me -- excluding those four Silicon Valley Residence Inns, the remainder of our portfolio was still up approximately 9.9% for the quarter, a good sign that shows the breadth of the performance across our entire portfolio.

The only real weak market for us similar to the second quarter was the Hampton Inn and Suites in Portland, Maine where RevPAR was down 3.6%. But having said that, the 3.6% decline was a lot better than we had actually underwritten when we bought the hotel because we knew that the new supply was coming into the market and has been opened during 2014.

So glad to at least see that that market is holding up fairly well with the good junk of new supply coming in. The third quarter saw us generate operating profit flow through for the 29 comparable hotels of approximately 65%.

I think that the actual number was 63% with operating leverage at very strong 1.6 times which we define as the comparable increase in comparable hotel EBITDA of 16.4% divided by the 10.5% increase in RevPAR.

Island has done a great job increasing our profitability throughout the year, leading the hotel EBITDA margins of 46.5% for the quarter, the highest among all lodging REITs and in the middle of the guidance that we have provided for the quarter. ADR comprised over 70% of our RevPAR gain for the quarter.

So we did expect to see better flow through and margin performance and something to keep in mind as we move later into the cycle, where the majority of our RevPAR growth is going to be driven by rates.

To give you a comparison for Silicon Valley, the four hotels in the valley, our actual hotel EBITDA margins in the quarter were 57.4%, compared to 56.1% in the 2013 third quarter.

Another defining point for our margins is actually, if you look at year-to-date operating margins, hotel EBITDA margins through September, which were 42.6%, which is by far the best among all lodging REITs, with the next closest REIT delivering a 38% margin.

So, very powerful numbers, looking at the overall quality of the portfolio and the operating results being driven out of those assets.

The high revenue, the high-margins, all allowed us to double our hotel EBITDA in the quarter and drive an 82% increase in adjusted EBITDA to $28.5 million and an 85% increase in FFO per share for the quarter to $0.73, exceeding consensus estimates.

Compared to consensus, we benefited from the acquisition of the Hyatt Place Cherry Creek, which added a half penny of FFO to the quarter and the outperformance of the Innkeepers joint venture which also added a penny.

Offsetting this was the negative impact of almost $0.02, due to the $150 million equity offering we completed in September, since we’ve raised the money in advance of the Inland transactions and use those proceeds in the interim to pay down debt.

Chatham is one of the top performing lodging REITs over the past four years with regards to FFO growth and the highest of the newer lodging REITs, who have come public since 2010, gaining on average approximately 20%. I think as Jeff alluded to, we do expect that similar type of growth in 2015, so it’s very, very strong results for Chatham.

Performance in the Innkeepers joint venture was equally stronger for the quarter. They contributed $2.65 million of EBITDA and $1.7 million of FFO for the quarter. At June 30th, our net debt was approximately $407 million, down a $135 million from June 30th, as a result of the offering that we completed in the latter part of September.

At quarter end, our leverage ratio was 37.5%, based on the ratio of our net debt to investment in hotels at cost. During the quarter, we had issued 6.9 million shares of stock in a follow-on offering at a price of $21.85, raising net proceeds of $144.7 million.

At the end of the quarter, we actually had $67 million of cash sitting on our balance sheet, again, in advance of closing Inland transactions within the next couple of weeks. We completed -- also during the quarter, we did put in place an at-the-market equity plan earlier this year.

During the quarter, we sold approximately 220,000 shares through the ATM program and the direct stock purchase plan, generating proceeds of approximately $5 million, which brings total sales under the ATM and the direct stock purchase plan to approximately $16 million, since we started using it in May of this year.

In early November, we expect to close on the two Inland investments in which we invest approximately $140 million after expenses, which is about an approximate $28 million investment in the joint venture for the 48 hotels, a $107 million for the acquisition of the four hotels and then deal-related costs on the acquisitions of approximately $5 million.

After completion of the Inland transactions, our leverage ratio will be in the mid-40% range but we still have the capacity to acquire additional assets. Our debt coverage ratios after the Inland transactions will still be very healthy. Just looking at Chatham’s wholly-owned ratios, our debt-to-EBITDA will be approximately 5.5 times.

And given our very low cost of debt, our debt service coverage ratio will be approximately 3.8 times on a forward-looking basis. When you add JV debt to our coverage ratios, our debt-to-EBITDA ratio goes from 5.5 times to 6.1 times. At quarter end, we had two hotels unencumbered by debt or not used as collateral for our line of credit.

And after the Inland transactions, we will have six unencumbered hotels. So again a potential source of capital. During the quarter, we issued a $30 million 10 year -- five years interest only CMBS loan on our SpringHill Suites in Savannah at an interest rate of 4.62%.

And this is a hotel that we acquired for approximately $40 million in December of 2014. The average interest rate on all of our debt sits now at 4.7% since we have no borrowings outstanding on our credit facility. The weighted average maturity on our fixed rate debt is November of 2023.

And we have only $11 million of debt maturing over the next seven years, with $5 million maturing next year and $6 million maturing in 2016. These are loans secured by our Altoona and Washington Pennsylvania hotels. So we will look to either pay those down with financing or through borrowings on our line of credit.

We will continue to use long-term debt to fund a portion of our acquisitions and lock in long-term financing, what are still very attractive rates on a historical level. Our dividend currently stands at $0.08 per share per month equating to an annualized dividend of $0.96. We do have minimal CapEx obligations for the next several years.

And we expect our free cash flow to be very strong. We've increased our dividend every year since our inception. And we’ll continue to award our shareholders with increases as our FFO per share continues to rise. We’ve stated since our IPO that we will continue to grow dividend in tandem with our earnings.

And if you look at it as a percentage of FFO per share, we paid out approximately 60% in 2012, 56% in 2013 and what’s projected to be approximately 50% in 2014 based on the current midpoint of our guidance of $1.93.a share.

Our board and our management team evaluates our dividend frequently and again it’s our intention to continue to grow our dividend in tandem with our FFO per share growth. Obviously when you look ahead to 2015 and another, what we believe to be growth in FFO of approximately 30%.

We would expect that we would continue to build and grow that dividend moving into 2015.

Turning our attention to the guidance for the fourth quarter and the resulting full year, our guidance accounts for the better inspected third quarter results, the impact of the $151 million offering on September 24th and the eventual investment of those proceeds of the offering in the Inland transactions again which we expect to close within the next couple of weeks.

The increase of the offering was approximately 6.9 million shares were sold, which is about an increase of 26% on what was our share count prior to the offering.

Projected fourth quarter FFO per share is going to be adversely impacted approximately $0.05 as a result of the arbitrage between Chatham’s common share offering in September and closing the Inland acquisitions in mid-November.

Even considering the dilution in fourth quarter, we are basically maintaining our guidance for the full year but most importantly the offering really doesn't change our very strong outlook for 2015.

We’ve raised our full year RevPAR outgrowth by approximately 175 basis points to account for the RevPAR outperformance in the third quarter and the onboarding of the four hotels we will be acquiring as part of the Inland transactions in early November.

At a $105 RevPAR for the four hotels that we’ll be acquiring is a bit lower than our overall portfolio RevPAR going into the closing of the transactions. So because of that, you'll see that our overall 2014 RevPAR guidance dropped from what would've been $124 to $126 to a range now of a $122 to $123.

Our RevPAR guidance for the quarter doesn't include the Hyatt Place Cherry Creek which didn’t open until October 2013. The Cherry Creek hotel is projected to see RevPAR grow 57% to $82 in the 2014 fourth quarter. Excluding the Cherry Creek hotel, the average room count for the quarter is approximately 4,633 rooms on a blended monthly basis.

And in 2015 Cherry Creek will be included in our overall guidance. So if you include that when you are modeling 2015, our estimated 2014 full year RevPAR including Cherry Creek is estimated to be approximately $122.

For the fourth quarter, our RevPAR growth is forecasted to growth 5.5% to 7.5% with the increase almost entirely attributable to increases in rate. Prior year quarterly RevPAR on a pro forma basis was a $106 in the 2013 fourth quarter.

We’ve raised our adjusted EBITDA and adjusted FFO by about $4 million to account for the acquisitions of the Cherry Creek, Hyatt Place and the pending Inland transactions.

Our guidance for adjusted FFO per share again is basically unchanged as the outperformance in the third quarter is being offset by the one-time impact related to the offering that we closed in September.

Our joint ventures are expected to contribute $11 million of EBITDA in 2014 versus $9.8 million and previously an FFO of $5.4 million versus $4.8 million, and that’s basically the increase attributable to now rolling in the Inland joint venture.

As I said earlier, our outstanding shares increased from approximately 27 million to 34 million, and for the weighted average year -- for the weighted average throughout 2014 will be at 28.8 million shares outstanding on a weighted average basis.

Although not impacting 2014, with regards to the four hotels we are going to be acquiring out the Inland portfolio. We do expect to spend approximately $8 million completing the PIPs on those four hotels and that capital outlay is expected to mostly be spent in 2015.

Given the fact that our current portfolio has outperformed the industry for eight of the past 12 years, our outlook for 2015 and our earnings power is strong.

And when we look ahead to 2015 and assuming RevPAR growth of 6% to 8%, which is point above the industry projections, our FFO per share grows from what is now range of $1.91 to $1.94 in 2014 to range of $2.45 to $2.55 per share in 2015. That’s again another 30% gain to very strong results coming from Chatham in 2014 and 2015 and beyond.

Operator, with that, that concludes my remarks. So I think we will turn it over for questions..

(Operator Instructions) We’ll take our first question from Brad Dalinka with SunTrust..

Hi. It’s Brad on for Patrick Scholes..

Hey, Brad..

I wanted to ask -- thanks for calling me, how are you? I wanted to ask about the new JVs in the next year and how we should think about the contribution from that?.

Sure. For 2015, I think what we’re trying -- we are looking at for both JVs is an EBITDA contribution of about $16 million to $17 million for 2015. And the contribution of JV from the two joint ventures is going to be in the $8 million to $8.5 million range..

Thanks..

You’re welcome..

(Operator Instructions) And we will now go to Nikhil Bhalla, FBR & Company..

Hi, good morning, Jeff, and good morning, Dennis..

Good morning, Nikhil..

Hey, good morning.

For next year, can you just also give us some sense of other than new promote structure? What the cash distribution that looked like by the end of the year from both the Inland JV and also the Innkeepers?.

Yeah. I mean, I think for both the Innkeepers and Inland transactions, I will combine them. They have the exact same promote structure or they’re going to have the exact same promote structure once we close the Inland transaction. So, from a cash distribution standpoint, we don’t expect to get into that promote in 2015.

From a distributions perspective, just without regard -- with that regards to promote, it’s going to be relatively close to the $8 million of FFO that we’re projecting.

Most of the capital outlays that have -- that are going to be required for both the Innkeepers and Inland transactions for really the first couple of years of those joint ventures, that’s all been pre-funded into an escrow at closing or will be at closing with respect to the Inland transaction.

So on a free cash flow out of those joint ventures, outside of some emergency capital, most of that you what I'll call FFO that’s going to be generated is going to be distributable cash..

Okay. Got it. And you talked about the pro forma margins with all the acquisitions included 2015. There also you talked about the RevPAR.

Any inference of what the margins may look for next year versus this year?.

Yeah. I mean, I think for, we talked about 2014 RevPAR for that portfolio of 30 hotel -- 34 hotels is going to be $122. So obviously you can build your growth off that $122 number. From a margin perspective, where we see 2014 for those hotels is somewhere around 42-ish percent. We expect another couple 100 basis points for 2015.

So, I think, if you are somewhere around 44% from a margin perspective you are in pretty good shape..

Okay.

And one final question on, just your (indiscernible) dry powder, how much do you think you still have, Dennis, in terms of acquiring any (indiscernible)?.

Listen, I mean, I think, we can easily acquire another $150 of assets and still be in that 49%, 50% leverage level. Obviously, in 2011, 2013, and earlier this year, we’ve move those in access of 50%, but $150 million get you to somewhere around that number..

Okay. Okay. Thank you very much..

And we have no further questions in the queue at this time..

All right. Well, if that’s it, we again are, obviously, hope you’re pleased with the results. When looking at where everybody else has been and reading the various releases as they have come out over the last week or so, I certainly, would think that, most folks think that we are in a pretty sweet part of the cycle here for hotels.

Personally, I have been doing this for awhile. I guess, I expected and I have said this before, more ADR growth, less occupancy growth in 2014 overall.

But it’s materialized in a very positive away for the length of the cycle, because with the occupancy gains that everybody has been seeing, in a more broad-based market settings, I think you can look at 2013 and 2015 as you would in other parts and other cycles, and say you really will get some stronger ADR growth as the rest of the comps sets as you move through 2015 might get nearer to maximum occupancy.

So then you look at the better branded hotels and you think about the growth that’s available there. We believe it ought to be pretty strong borrowing some unforeseen events, our geopolitical or other basis that we don’t know about anyway.

And internal, therefore, internal growth, bottomline strong, not much supply, you have got a different kind of setting than you had in prior years, for example, building up to 2008, one in ’04, ’05 and ’06, there was a lot of construction.

And you look at that and you look at still, the lack overall of financing for construction at a high loan to costs and together with increase construction costs and fewer subs that are out there as a results of the recession, you really and we have heard anecdotally and in real life that as we look to price our first Silicon Valley expansion.

We budgeted it reasonable and conservative and on the high side and that’s exactly where we think it will come out. So, again, macro really looks forward to, I think, strong growth internally and our ability to cherry-pick assets and grow on an external basis.

And I think some of the strongest markets in the United States that are insolated from new supply that may or may not come later cycle bodes real well for our shareholders and our growth going forward. So that’s our overall plan and we look forward to executing and talking to you at NAREIT and beyond. Thank you..

This does conclude today’s conference. We appreciate your participation..