Prepared remarks
Good morning, ladies and gentlemen, and welcome to the Chatham Lodging Trust Second Quarter 2026 Financial Results Conference Call. The call is being recorded on August 4, 2026. I would now like to turn the conference over to Chris Daly. Please go ahead.
Thank you, Matthew. Good morning, everyone, and welcome to the Chatham Lodging Trust's 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 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.
Thanks, Chris. Appreciate that. And 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 is 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 5 years how much they value those experiences. And 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. That's consistent with 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% to 35%, with close-in bookings increasing and small to medium-sized businesses' recovery 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 mid-scale hotels as these travelers are generally not staying in luxury hotels. 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 6-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 square feet 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. Proceeds through the sale of the commercial space will reduce our basis. We estimate our unlevered year 2 stabilized yield will be around 11% and will be meaningfully accretive upon its opening. Now let's talk about another great investment that's paying off for our shareholders, our share repurchase plan, which 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 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 paused repurchases now, 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, and 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. And 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 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 Department of Energy site. It was announced earlier this week that the Department of Energy is partnering with Brookfield, NextEra, Big Rivers Electric Power Company, 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%, and 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, and 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, but 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. And 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. And our quarterly RevPAR of $164 is our highest RevPAR over the last 6 years. These are great results and very encouraging, especially considering the renovation at our Mountain View hotel during the quarter. We are seeing strong corporate demand, especially within the corporate transient segment. 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. 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. Silicon Valley is the heart of the tech world, and we are seeing a strong resurgence. Future announcements keep coming to our markets. For example, just last week, Databricks continues its rapid growth in the Bay Area with its expansion into a new 305,000 square foot office in downtown Sunnyvale, just 2.5 miles from our 2 Residence Inns. 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 3.5 miles from both of our hotels. Elsewhere, OpenAI announced they're leasing a 450,000 square foot office complex less than 4 miles from our hotel in Mountain View and Sunnyvale, and General Motors, which currently occupies about 1 million square feet across the valley, is considering consolidating some of its auto talent into offices either in or near Stanford or Sunnyvale for more space. The San Francisco Business Times stated that companies are pursuing almost 11 million square feet of office and R&D space in Silicon Valley. Essex Property Trust, one of the largest multifamily REITs in the country, with a lot of exposure to Northern California, especially Silicon Valley and San Francisco, commented on their recent call that Northern California was their best performing market. These are just great trends for our 4 hotels, and given their significance, ultimately, our entire portfolio performance. Compared to 2019, there's still a lot of upside in Sunnyvale and Mountain View, and we fully expect RevPAR to get back to those hotels and then some. Our projected 2026 San Mateo Residence Inn RevPAR is about 10% higher than 2019 levels and still growing meaningfully. Mountain View was impacted by renovation in the first and second quarter, so comparing 2026 to 2019 isn't relevant for them, but our projected Sunnyvale RevPAR is still about 18% shy of 2019 levels. So returning those 2 big hotels to 2019 levels would add another $3 million of FFO or $0.06 per share. Wrapping up my prepared remarks, looking to the balance of the year, we have increased our annual guidance for the second quarter beat, as well as a modest increase to the second half of the year. Probably a bit of conservatism in our second half outlook, but given the ongoing conflict in the Middle East and limited visibility past the next one or two months, we are assuming low single-digit RevPAR growth similar to Hilton's non-luxury projection. With that, I'd like to turn it over to Dennis.
Thanks, Jeff. Second quarter RevPAR finished strong, with RevPAR up 9% in June and July advancing 10%. July occupancy rose 5% with ADR up 4%. July RevPAR grew in 35 of our 39 hotels, and 14 of our 39 hotels saw RevPAR gains of over 10%. In fact, June and July RevPAR of $175 and $169 are all-time high marks for each of those respective months. We continue to experience broad demand growth across our portfolio with approximately two-thirds of our hotels generating RevPAR growth, three-fourths of our hotels pushing ADRs higher, and approximately one-fourth of our hotels experiencing double-digit RevPAR gains. This is essentially the same trend from the first quarter and a signal of strength of our portfolio moving forward. Adding to Jeff's commentary on Silicon Valley, July RevPAR was fantastic with RevPAR increasing 26% across all 4 hotels and our 2 Sunnyvale hotels up 41% with growth attributable primarily to corporate transient demand as the World Cup did not have much of an impact there. We hosted one game at Levi's Stadium in the month of July. Our top 5 RevPAR hotels in the quarter were our Residence Inn Washington, D.C. with RevPAR of $236, our Residence Inn White Plains with RevPAR of $209, followed by our Marina del Rey Hilton Garden Inn with RevPAR of $206, and rounded out by our Residence Inn San Diego Gaslamp, Embassy Suites Springfield, and our Hampton Inn Portland, all basically right around $198 for the quarter. The fact that two of our top five are in the D.C. Metroplex gives you a feeling for how well that market has rebounded after a really tough 2025. Five of our 39 hotels benefited from World Cup related demand. June RevPAR was up almost 12% at these hotels. The impact to the quarter was only basis points to our entire portfolio. So our RevPAR was still up 3% for the quarter, excluding any World Cup impact. Our seven predominantly leisure hotels generated RevPAR growth of approximately half a point in the quarter. Our Savannah SpringHill Suites continues its hot performance post-renovation last year with growth of 9% in the quarter, while our Hilton Garden Inn Portsmouth saw RevPAR decline 8% in the quarter due to leisure softness from Canada, some wildfire impact, and a new Homewood Suites that opened earlier this year. Our three predominantly government-oriented hotels, all in the greater D.C. area, produced RevPAR growth of 9% in the quarter, the same as the first quarter production. As a group, these hotels represent approximately 9% of our EBITDA. Our Springfield Embassy Suites and our Tysons Corner hotels produced RevPAR growth of 14% and 13% respectively. Our five convention hotels saw RevPAR decline 5% in the quarter. San Diego RevPAR dropped 9%, which is about what we expected as the 2026 convention calendar for the balance of the year is soft in comparison to prior years. In Texas, our Dallas and Austin hotels have felt the impact of convention demand falling off as well, with those convention centers being under renovation and for ongoing expansions. RevPAR at our Courtyard Dallas was down 3% in the quarter, much better than the 26% in the first quarter, and our comps get better over the last half of the year. We benefited some at that hotel from the World Cup media center being located in the convention center downtown. RevPAR at Austin hotels were down less than 3% in the quarter. Those comps start to get easier as we get through the balance of the year. Switching to our profitability, we had another great quarter managing expenses and maximizing employee productivity, as well as increasing our non-room profits and driving margins higher. We continue to focus on increasing other operating department revenue and profits, and we were able to increase those profits by about $400,000 or 13% in the quarter. As we mentioned in the release, when you take out the one-time workers' compensation refund, our GOP and our hotel EBITDA margins jumped 170 and 220 basis points respectively, with GOP and EBITDA flow-through of approximately 60%. Taking out the refund, our department expenses were down almost 1% on a CPOR basis, and all hotel operating expenses were only up about 2% on a CPOR basis. Our employee productivity is excellent. For example, coming off a very efficient first quarter, our second quarter occupied rooms were up 13% over the first quarter with headcount only up 4%. There remains really no shortage of available labor. As a reminder, we reassess our employee pay every July and the increase for our employees across our hotels averaged approximately 2.5%. Below the GOP line, we received approximately $300,000 in property tax refunds at our Sunnyvale and Fort Lauderdale hotels that enhanced our EBITDA margins even higher than our GOP margins. For the quarter, our top five producers of GOP were led by our Residence Inn San Diego, our Embassy Suites Springfield, followed by our Sunnyvale Residence Inn, then our Bellevue Residence Inn, and finally our SpringHill Suites Savannah. All three of the Silicon Valley hotels that were not under renovation were among our top 11 in EBITDA production. Using hotel EBITDA, our Sunnyvale II Residence Inn led all hotels and all four Silicon Valley hotels, as well as our Bellevue Residence Inn, were ranked in our top 10. So clearly, tech hotels are gaining ground. GOP at our three non-renovation impacted Silicon Valley hotels were approximately 51%, over 400 basis points higher than our portfolio average. Looking further at the comparable Silicon Valley hotels, which excludes the Mountain View hotel, hotel EBITDA grew a strong 29% year-over-year on a 9% RevPAR increase. We did benefit from some property tax refunds, but EBITDA margins would still be about 20% higher excluding those. We discussed last quarter that we'd most likely look to opportunistically sell an asset or two this year. Thankfully, we don't have a lot that we want to get rid of, but I do want to let everybody know we are marketing one of our smaller hotels for sale with similar characteristics to the hotels we sold last year, and we would expect proceeds for that sale to be less than $20 million. We hope to have something to announce in that regard when we come back in November for our third quarter earnings call. On the CapEx front, we spent approximately $7 million in the quarter, with our full budget for the year being about $27 million, and we do have three hotels scheduled for renovation later this year, those being our Gaslamp Residence Inn, our Hyatt Place Pittsburgh, and our Farmington Homewood Suites. With that, I'll turn it over to Jeremy.
Thanks, Dennis. Good morning, everyone. Our Q2 2026 hotel EBITDA was $35.7 million. Adjusted EBITDA was $32.7 million, and adjusted FFO was $0.48 per share. We were able to generate a GOP margin of 46.8% and hotel EBITDA margin of 40.8% in Q2. GOP margins for the quarter were up 60 basis points from Q2 2025 and hotel EBITDA margins increased 220 basis points. As a reminder, we recorded a $900,000 workers' comp benefit in Q2 2025, so excluding the impact of that, GOP margins would have been up 170 basis points and hotel EBITDA margins would have been up 330 basis points. The Midwest portfolio that we acquired in March generated RevPAR growth of 8.6% and $3.2 million of hotel EBITDA in Q2. Chatham's overall RevPAR growth of 3.3% in Q2 exceeded our expectations going into the quarter, and performance accelerated significantly over the course of the quarter, with June RevPAR up 8.7%. This strong top-line performance has continued into July, where Chatham's RevPAR increased 9.7%. Chatham's balance sheet remains in excellent condition and provides significant flexibility to fund opportunistic growth through accretive acquisitions and the development of the Home2 Portland, Maine. At the end of Q2, Chatham's leverage ratio as defined in our credit facility was only 31.2%, and the company had $225 million of availability under its revolving credit facility. Continuing strong EBITDA growth and meaningful free cash flow after dividends are expected to further enhance our financial flexibility. Turning to our 2026 guidance, we expect RevPAR growth of 1.5% to 3%, adjusted EBITDA of $99.2 million to $102.3 million, and adjusted FFO per share of $1.28 to $1.34 for the full year. We generally expect Chatham's Q3 RevPAR will increase approximately 4%. As a reminder, our 2025 RevPAR pro forma for the impact of the Midwest acquisition would have been $149 in Q3, $129 in Q4, and $140 for the full year in 2025. This concludes my portion of the call. Operator, please open the line for questions.
Questions and answers
One moment, please, for your first question. And your first question comes from Gaurav Mehta of Alliance Global Partners. Please go ahead. Your line is open.
I wanted to ask you on the expense management. You talked about labor and productivity. Can you maybe talk about other expense items, maybe insurance costs and any other expense items where you are looking at expense management?
Hey, Gaurav. This is Dennis. Good morning. If you look outside of labor and productivity, which between labor and benefits represents almost 40% of our operating costs, we've seen some benefits from property tax refunds from prior years that are finally starting to come through, and hopefully those continue as we catch up with local jurisdictions. Property insurance for us was renewed at the beginning of the year, and we've seen that down around the 10% range for the full year. Regarding utilities, we've done a pretty good job getting competitive bids on pricing and securing longer-term fixed-rate contracts in certain markets, which helped mitigate rising gas and electricity costs. Lastly, if you look at our R&M line in total for the year, we've done a very good job of investing dollars in the past and we've started to see the benefits this year, with a slight year-over-year decline that has benefited our margin. So there's a lot of focus in that area as well.
Okay. Second question on the asset you are looking to sell. What's expected use of the proceeds and is that disposition included in the guidance?
It's not included in the guidance. We typically don't treat it as part of guidance until it literally closes. In the short term, we expect to use proceeds to pay down our credit facility. We have roughly $60 million to $70 million outstanding on the revolver as of today, so we'll use the proceeds to pay down the line.
Your next question comes from Tyler Batory of Oppenheimer. Please go ahead.
First question for me, I really wanted to double click on the July performance in terms of RevPAR up 10%. Is there anything unusual that's going on with the comp year-over-year? And if you could just go through really what was going on contributing to that very strong performance that would be helpful.
Hey, Tyler. Good morning. It starts with Silicon Valley. If you recall last year when we were reporting on our third quarter earnings call in November, we talked about a decision we had made regarding one of our top accounts in terms of pricing for some business, and we declined that price reduction. So we had a weak third quarter in Silicon Valley last year, making the comps easier there. A plus 26% in July, including plus 41% in Sunnyvale at the two hotels there, was a bigger surprise than we expected and what we had underwritten three months ago. We have seen a good trend outside of the Mountain View hotel with double-digit increases, and a plus 26% in Silicon Valley really helps our portfolio.
Okay. Can you bridge for us where you are on RevPAR so far this year through July, and then connect the dots with the full year guide? Not sure if there's anything unique going on in the second half of the year. How much of the outlook is a bit of extra conservatism?
I'm not sure I can verbally connect the exact dots, but as Jeff mentioned, we're taking a somewhat conservative posture. July plus 10% is fantastic and early thoughts into August are good. For now, we are assuming that September through December will be low single digits, and we hope to outperform that, but given the relative risk and limited visibility, we're being conservative to start.
A bigger picture question for me, Jeff or Dennis: you talked about a protracted upcycle for lodging. Can you expand on that comment? What gives you that confidence, and what do you think will contribute to that continuing over the next couple of years?
This is Jeff. It really revolves around simple supply-demand economics. In my experience, we are approaching the longest period where construction starts have been as low as they have been since the pandemic. Very little new supply generally yields pricing power. You can see our portfolio occupancy is around 81%. In our peak years, occupancy was around 83%, so we're getting to levels where the ability to charge more and achieve ADR increases that push RevPAR is coming or is already present in some markets. Fundamental GDP and manufacturing growth, highlighted by our Midwest portfolio's performance, feels sustainable. Whether AI is viewed as a bubble or not, our Silicon Valley presence is paying off, and I don't think that demand will pull back soon. I also don't expect a 40% RevPAR gain to be fully sustainable, but lack of new supply and higher construction costs mean fewer new hotels are being built. Many developers who once built 10 or more hotels a year are building one or two if that. In the select-service arena, that dynamic paints a pretty positive picture for us.
To add to Jeff's comment about occupancy, if you look at the last 16 years as a public company, our annual occupancy peaked at about 81.5% back in 2014. The busiest months of the year, generally the summer months and October, had portfolio occupancy in the upper 80s and occasionally as high as 90%. With occupancies now in the low to mid-80s, that should continue to gain given the lack of new supply.
Appreciate that. Last one for me, just on the transaction market: given the positive fundamental outlook, what's the opportunity set look like for acquisitions? What are you seeing in terms of valuations and volume of assets out there overall?
This is Jeff again. As Jeremy indicated, our balance sheet is strong and provides flexibility. We remain disciplined: we weigh whether acquisitions or share repurchases deliver better long-term yield. As the stock price has rebounded, those economics have shifted somewhat. If RevPAR trends continue positively across the country, owners who were on the fence about selling, dealing with debt maturities, or funding behind renovations may decide to list properties. I expect the pipeline to increase and the transaction market in the second half of this year to be better than the first half, but this will be an evolving picture rather than an immediate flood of assets to market.
There are no further questions at this time. I would now like to turn the call back over to the speakers for closing comments.
Well, again, thank you all for being with us today. We certainly look forward to continuing to put the kind of results on. I'd also like to compliment our team and the Island Hospitality team, as they've been doing a great job. The results that have been posted reflect a lot of hard work. The expense management has been excellent. We expect to continue to maintain our focus on all fronts: driving RevPAR, driving market share, and driving incremental revenue to the bottom line. Thank you.
Ladies and gentlemen, this concludes today's conference. We thank you for participating and ask that you please disconnect your lines.