CHATHAM LODGING TRUST 2026 Q2 Earnings Call

Good morning, everyone, and welcome to the Chatham Lodging Trust second quarter 2026 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 August 4, 2026, unless otherwise noted, and the company undertakes no obligation to update any forward-looking statements to conform the statement to actual results or changes in the company's expectations. You can find copies of our SEC filings and earnings release, which contain reconciliations to non-GAAP financial measures referenced on this call, on our website at chathamlodgingtrust.com.

Now, to provide you some insight into Chatham's 2026 second quarter results, allow me to introduce Jeff Fisher, Chairman, President, and Chief Executive Officer, Dennis Craven, Executive Vice President and Chief Operating Officer, and Jeremy Wegner, Senior Vice President and Chief Financial Officer. Let me turn the session over to Jeff Fisher.

Jeff? Thanks, Chris. Appreciate that.

I also appreciate everybody who's joined us today on our call. Lots of good stuff to talk about here. It was a great second quarter, which followed a very good first quarter, and as a result, we have increased our guidance by approximately 20% since the start of the year. It's a pretty simple equation to explain. We combined a great acquisition together with strong operating results and share repurchases. We believe the lodging industry is in the early stages of a protracted upcycle. Of course, we understand the Iran conflict makes the near term choppy, but we really like the long-term dynamics. Leisure travel remains strong and will continue that way as domestic travelers realize over the last five years how much they value those experiences.

Of course, for us, it's important to focus on business travel, which is the biggest driver of our portfolio and represents around 75% of our EBITDA. We are really seeing business travel accelerate even more than it has over the last few years at a faster pace, and that's no different than what you've been hearing from the airlines and the hotel brands. On their most recent calls, Delta and United reported corporate travel is up 20%-30%, with close-in bookings increasing and small to medium-sized businesses recovery is surging. There's so much business investment happening around the country across many different industries, especially manufacturing and technology, and this is really starting to boost the upscale and midscale hotels as these travelers are generally not staying in luxury hotels.

I'm sure many of you heard that Hilton on its conference call echoed these same thoughts as they stated the biggest single change they have seen over the last couple of quarters is strong growth in mid-week business transient travel, with very encouraging patterns in small to medium-sized businesses in terms of occupancy gains and their rate growth outstripping what they were seeing from the big corporates. These trends will benefit Chatham more than most of our peers, and as you will hear in the next few minutes, we are seeing great results in our recently acquired six-hotel portfolio that further validates the demand growth in the small to medium-sized businesses across the manufacturing belt in the Midwest and Southeast. On top of these encouraging demand trends, the supply part of the equation should also benefit existing hotel owners.

Construction costs remain quite high, and development is only justified in a few special markets, such as our downtown waterfront Portland, Maine location. On that note, we are excited to have commenced construction on our 130-suite Home2 Suites on what was a surface parking lot adjacent to our Hampton Inn in the heart of the downtown waterfront. The development includes approximately 5,500 sq ft of commercial space at the corner of Middle Street and India Street that will be sold. This commercial space is ideally positioned in the heart of the most favorable area of downtown Portland. Although we are very early in the project, we are anticipating the hotel will open just before the summer of 2028. Total construction costs are expected to be $45 million, or $350,000 per room. Though through the sale of the commercial space will reduce our basis.

We estimate our unlevered year two stabilized yield will be around 11% and will be meaningfully accretive upon its opening. Let's talk about another great investment that's paying off for our shareholders, our share repurchase plan, which, by the way, we launched in May 2025. We've repurchased another $3 million of stock in the quarter, bringing total purchases to date of over $18 million out of our $25 million plan. Since inception, we've repurchased 2.5 million shares, which equates to approximately 5% of our outstanding shares and units at a price of $7.29, or a corporate NOI cap rate of approximately 10%, and hotel NOI cap rate of 11.3%, and at an almost 50% discount to our current trading level. Just a great use of free cash flow, and obviously, a tremendous return for our shareholders.

We've paused repurchases now, for as the current share price has rebounded and the valuation disconnect has compressed. As always, we continually evaluate potential acquisitions and weigh whether to use our capital to acquire hotels or repurchase shares. Trust us, we understand the importance of investing our capital wisely. On the acquisition front, I have to highlight the outstanding performance of our recently acquired portfolio of 6 hotels in Missouri, Illinois, and Kentucky. Performance is surpassing our expectations. RevPAR growth accelerated further in the second quarter, up 9% on an even split between occupancy and ADR. Second quarter occupancy was 83%, 200 basis points higher than our portfolio average for the quarter. July, RevPAR jumped another 13%, with occupancy up 9% to 86%, and ADR up 3%.

Additionally, the portfolio produced GOP margins of 49.3% in the quarter, 250 basis points higher than our average portfolio average, even though RevPAR is about 20% below our portfolio average, which provides a great look-through into why we like this portfolio as it combines a strong RevPAR outlook with favorable labor dynamics and lower operating costs per room. Last quarter, we spoke about the recently announced nuclear uranium enrichment facility in Paducah, Kentucky, on the U.S. Department of Energy site, it was announced earlier this week that the U.S. Department of Energy is partnering with Brookfield NextEra, Big Rivers Electric Corporation, Jackson Purchase Energy Cooperative, and the Paducah Power System to invest over $100 billion into a new data center within that same complex. The project is expected to create 8,000 construction jobs and 600 permanent jobs and adds another demand generator for our hotels.

Operationally, it was a great quarter for us, with RevPAR margins, EBITDA, and FFO easily beating our expectations for the quarter. RevPAR grew 3%, we were able to increase our pro forma GOP margins 170 basis points and our hotel EBITDA margins by 220 basis points. Dennis is going to talk about our other larger markets, I'm going to talk a little bit about our largest market, Silicon Valley, which accounts for 17% of our EBITDA now. We've seen RevPAR grow 18 of the last 21 quarters and 10 of the last 11 quarters. Importantly, our projected 2026 RevPAR growth would be our best gaining year since the pandemic. Silicon Valley's RevPAR growth of 7% boosted our portfolio growth by 40 basis points. As growth accelerates, given its significance to the portfolio, it amplifies our company's growth.

Second quarter ADR was up 10% to a post-pandemic quarterly high of $212. That's for any quarter, not just the second quarter. Our quarterly RevPAR of $164 is our highest RevPAR over the last 6 years. These are great results and very encouraging, again, especially considering the renovation at our Mountain View hotel during the quarter. We are seeing strong corporate demand, especially within the corporate transient segment. As Dennis quoted in our release, "Since the beginning of the year, we have seen double-digit demand growth from top accounts such as Applied Materials, Palo Alto Networks, NVIDIA, and Google." As good as our second quarter was in Silicon Valley, July RevPAR at our 4 hotels was outstanding, accelerating 26%. Within that number, our 2 Sunnyvale hotels rose 41% in July.

Of course, massive capital investment announcements continue into technology from all types of companies, and importantly, companies of all sizes, from the largest in the world to small and medium-sized companies, even startups. Of course, Silicon Valley is the heart of the tech world, and we are seeing a strong resurgence. Major announcements keep coming to our markets. For example, just last week, Databricks, the data and AI company, today continues its rapid growth in the Bay Area with its expansion into a new 305,000 square foot office in downtown Sunnyvale, just two and a half miles from our two Residence Inns. Just two weeks ago, Amazon announced that it had leased an entire 317,000 square foot building at The Moffett Towers in Sunnyvale, and the towers are, again, only three and a half miles from both of our hotels.