PART I [Business](index=5&type=section&id=Item%201.%20Business) Chatham Lodging Trust is a REIT specializing in upscale hotels, owning 42 properties and interests in 95 JV hotels, managed by an affiliate - As of December 31, 2018, the Company owned **42 hotels** with **6,283 rooms** and held noncontrolling interests in two joint ventures (NewINK JV and Inland JV) which own a total of **95 hotels** with **12,500 rooms**[22](index=22&type=chunk) - The Company's primary business strategy includes disciplined acquisition of properties below replacement cost, opportunistic repositioning, aggressive asset management, and maintaining a prudent capital structure with a leverage ratio of approximately **34.7%** as of year-end 2018[31](index=31&type=chunk)[32](index=32&type=chunk) - All **42** of the Company's wholly-owned hotels are managed by Island Hospitality Management Inc. (IHM), which is **51%** owned by the Company's CEO, Mr. Fisher. IHM also manages a significant portion of the JV hotels[25](index=25&type=chunk) Management Fee Structure with IHM | Fee Type | Rate/Terms | | :--- | :--- | | **Base Management Fee** | A percentage of the hotel's gross room revenue (typically 3.0%) | | **Incentive Management Fee** | 10% of the hotel's net operating income above a specified return threshold, capped at 1% of gross hotel revenues | - To maintain its REIT status, the Company cannot operate its hotels directly. It leases them to Taxable REIT Subsidiaries (TRS Lessees), which then engage third-party management companies like IHM[24](index=24&type=chunk) [Risk Factors](index=15&type=section&id=Item%201A.%20Risk%20Factors) The Company faces diverse business, industry, real estate, and REIT-specific risks, including reliance on IHM and maintaining REIT status - A significant concentration of operational risk exists as one management company, IHM (affiliated with the CEO), managed all **42** wholly-owned hotels and most JV hotels as of December 31, 2018[81](index=81&type=chunk)[114](index=114&type=chunk) - The Company's growth and operations are dependent on its ability to obtain financing, as REIT rules require distributing at least **90%** of taxable income, limiting the use of retained earnings for funding[73](index=73&type=chunk)[88](index=88&type=chunk) - Risks related to joint venture investments include a lack of full decision-making authority, reliance on partners' financial condition, and potential disputes or impasses with co-venturers[102](index=102&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk) - The lodging industry is cyclical and highly competitive. Performance is linked to the general economy, and risks include over-supply of rooms, competition from alternative lodging (e.g., Airbnb), and the need for ongoing capital expenditures[117](index=117&type=chunk)[123](index=123&type=chunk)[126](index=126&type=chunk)[133](index=133&type=chunk) - Failure to maintain qualification as a REIT would subject the Company to federal corporate income tax, significantly reducing cash available for shareholder distributions and adversely impacting share value[173](index=173&type=chunk)[174](index=174&type=chunk) [Properties](index=35&type=section&id=Item%202.%20Properties) As of December 31, 2018, the Company owned 42 hotels (6,283 rooms) for $1.48 billion, with $503.6 million in mortgage debt Wholly-Owned Hotel Portfolio Summary (as of Dec 31, 2018) | Metric | Value | | :--- | :--- | | **Number of Hotels** | 42 | | **Number of Rooms** | 6,283 | | **Total Purchase Price** | $1,483.9 million | | **Total Mortgage Debt Balance** | $503.6 million | [Legal Proceedings](index=36&type=section&id=Item%203.%20Legal%20Proceedings) IHM, the Company's hotel manager, faces two California class-action lawsuits for wage violations, with the Company accruing $0.1 million in estimated liability - IHM is defending two class-action lawsuits in California related to alleged wage and hour law violations at hotels it operates, including some owned by the Company[218](index=218&type=chunk) - The Company has accrued an estimated liability of **$0.1 million** related to these lawsuits as of year-end 2018[218](index=218&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=37&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The Company's common shares trade on the NYSE under "CLDT", with 2018 distributions characterized as 86.7% ordinary income and 13.3% return of capital - The Company's common shares are listed on the NYSE under the ticker symbol **"CLDT"**[222](index=222&type=chunk) Tax Characterization of Common Share Distributions | Year | Ordinary Income | Return of Capital | Unrecap. Sec. 1250 Gain | | :--- | :--- | :--- | :--- | | **2018** | 86.7% | 13.3% | 0.0% | | **2017** | 85.5% | 9.1% | 5.5% | - As of December 31, 2018, there were **1,400,529** securities remaining available for future issuance under the company's equity compensation plans[232](index=232&type=chunk) [Selected Financial Data](index=40&type=section&id=Item%206.%20Selected%20Financial%20Data) This section summarizes five-year financial data, showing 2018 total revenue of $324.2 million, net income of $30.6 million, and total assets of $1.44 billion Selected Financial Highlights (in thousands, except per share data) | Metric | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | **Total Revenue** | $324,230 | $301,844 | $295,871 | | **Net Income to Common Shareholders** | $30,641 | $29,478 | $31,483 | | **Diluted EPS** | $0.66 | $0.73 | $0.81 | | **Total Assets** | $1,439,709 | $1,392,216 | $1,302,954 | | **Total Liabilities** | $632,291 | $582,436 | $621,364 | | **Cash Dividends per Share** | $1.32 | $1.32 | $1.30 | [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=42&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The MD&A analyzes 2018 financial performance, with revenue up 7.4% to $324.2 million, net income at $30.9 million, and a 34.7% leverage ratio [Results of Operations](index=43&type=section&id=Item%207.%20Results%20of%20Operations) In 2018, total revenue increased 7.4% to $324.2 million, driven by acquisitions and RevPAR growth, while net income rose to $30.9 million, impacted by a 2017 impairment loss Year-over-Year Performance Comparison (2018 vs. 2017) | Metric | 2018 | 2017 | % Change | | :--- | :--- | :--- | :--- | | **Total Revenue** | $324.2M | $301.8M | 7.4% | | **Hotel Operating Expenses** | $170.6M | $155.7M | 9.6% | | **Net Income** | $30.9M | $29.7M | 4.0% | | **Same Property RevPAR** | $134.19 | $133.04 | 0.9% | - The increase in 2018 revenue was primarily driven by contributions from hotels acquired in 2017 (**$23.5 million**) and 2018 (**$1.1 million**), along with a **$4.7 million** increase from the 37 comparable hotels[251](index=251&type=chunk) - The Company recorded a **$6.7 million** impairment loss on its Washington SHS, PA hotel during 2017, which negatively impacted year-over-year net income comparisons[267](index=267&type=chunk)[294](index=294&type=chunk) [Non-GAAP Financial Measures](index=51&type=section&id=Item%207.%20Non-GAAP%20Financial%20Measures) The company uses non-GAAP measures like FFO and EBITDA; in 2018, FFO was $85.8 million and Adjusted EBITDA was $131.5 million Reconciliation of Net Income to FFO and Adjusted FFO (in thousands) | Metric | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | **Net Income** | $30,870 | $29,680 | $31,695 | | **Depreciation & Amortization** | $47,932 | $46,060 | $48,562 | | **Impairment Loss** | $0 | $6,663 | $0 | | **FFO** | $85,812 | $85,676 | $88,453 | | **Adjusted FFO** | $90,696 | $86,295 | $88,992 | Reconciliation of Net Income to EBITDA and Adjusted EBITDA (in thousands) | Metric | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | **Net Income** | $30,870 | $29,680 | $31,695 | | **EBITDA** | $122,384 | $118,919 | $124,374 | | **EBITDAre** | $122,402 | $122,255 | $124,384 | | **Adjusted EBITDA** | $131,499 | $126,698 | $127,973 | [Liquidity and Capital Resources](index=55&type=section&id=Item%207.%20Liquidity%20and%20Capital%20Resources) The Company's liquidity relies on cash and its credit facility, with $7.2 million cash, $168.5 million available, $585.1 million total debt, and a 34.7% leverage ratio - As of December 31, 2018, the Company had **$7.2 million** in cash and cash equivalents and **$168.5 million** available for borrowing under its **$250 million** senior unsecured revolving credit facility[327](index=327&type=chunk) - The company's leverage ratio (net debt to investment in hotels at cost) was **34.7%** at year-end 2018, with total debt of **$585.1 million** at an average interest rate of approximately **4.6%**[333](index=333&type=chunk) - In March 2018, the senior unsecured credit facility was refinanced, extending the maturity to March 2023 and reducing borrowing costs by up to **15 basis points**[336](index=336&type=chunk) - During 2018, the Company raised **$16.9 million** through its Dividend Reinvestment and Stock Purchase Plan (DRSPP) and **$7.6 million** through its At the Market (ATM) equity offering program[338](index=338&type=chunk)[339](index=339&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=63&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The Company's primary market risk is interest rate changes on its $81.5 million variable-rate debt, with a 100 basis point increase raising annual interest expense by $0.8 million - The company's main market risk is interest rate fluctuations on its variable-rate debt, which totaled **$81.5 million** at year-end 2018[375](index=375&type=chunk)[377](index=377&type=chunk) - A hypothetical **100 basis point** increase in the variable interest rate would result in an estimated additional annual interest expense of approximately **$0.8 million**[378](index=378&type=chunk) [Controls and Procedures](index=64&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management and auditors concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2018 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the fiscal year 2018[383](index=383&type=chunk) - Management's assessment, based on the COSO framework, concluded that internal control over financial reporting was effective as of December 31, 2018, a conclusion audited and confirmed by PricewaterhouseCoopers LLP[386](index=386&type=chunk)[387](index=387&type=chunk) PART III [Trustees, Executive Officers, Corporate Governance, Compensation, and Principal Accountant Fees](index=65&type=section&id=Items%2010-14) Information for Items 10-14, including corporate governance, executive compensation, and related party transactions, is incorporated by reference from the 2019 Proxy Statement - Information regarding corporate governance, executive compensation, security ownership, and related transactions is not detailed in this 10-K but is incorporated by reference from the forthcoming 2019 Proxy Statement[391](index=391&type=chunk)[392](index=392&type=chunk)[393](index=393&type=chunk)[394](index=394&type=chunk)[395](index=395&type=chunk) PART IV [Exhibits and Financial Statement Schedules](index=66&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section includes consolidated financial statements, the independent auditor's report, Schedule III, and an index of all exhibits filed with the report - This part contains the full audited consolidated financial statements for the fiscal years 2018, 2017, and 2016[398](index=398&type=chunk) - Financial Statement Schedule III, detailing Real Estate and Accumulated Depreciation as of December 31, 2018, is included[398](index=398&type=chunk)

Financial Data and Key Metrics Changes - The overall portfolio RevPAR growth was 4%, exceeding the original guidance range of negative one to up one [5] - Adjusted FFO for Q4 2018 was $18.4 million, a 15% increase from $16 million in Q4 2017, with adjusted FFO per share rising 8.3% to $0.39 [35] - Adjusted EBITDA for Q4 was $28.9 million, up 9.9% from Q4 2017 [36] - The company reported a net loss of $0.2 million or $0.01 per share for Q4 2018, compared to net income of $5.5 million or $0.12 per share in Q4 2017 [33] Business Line Data and Key Metrics Changes - RevPAR growth of 4.1% in Q4 was driven by ADR gains of 1.5% to $161 and occupancy rising 2.4% to 77% [18] - Incremental revenue from parking rate increases generated $1.5 million at 40 comparable hotels [8] - Revenue from room amenity packages added $200,000 in 2018 [8] Market Data and Key Metrics Changes - Silicon Valley contributed 23% of hotel EBITDA, with RevPAR up 0.8% to $165 despite renovations [19] - San Diego RevPAR increased 34%, with downtown Gaslamp Residence Inn achieving a 35% increase to $171 [21] - Washington DC RevPAR declined 1.7%, impacted by renovations and government shutdown [22] - Northeastern Coastal Market hotels saw RevPAR advance over 17%, driven by demand from North Boston gas explosions [24] Company Strategy and Development Direction - The company plans to continue asset sales to fund acquisitions or developments, focusing on value-add opportunities [13] - The strategy includes converting existing space into income-producing assets, such as bars in limited service hotels [15] - The company aims to maintain high operating margins and is focused on maximizing revenue while minimizing margin erosion [12] Management's Comments on Operating Environment and Future Outlook - Management expects RevPAR growth for 2019 to be negatively impacted by various factors, including renovations and tough comparisons from 2018 [11] - The company remains optimistic about maintaining the highest operating margins among REITs [12] - Management noted challenges in labor costs and supply growth in the hospitality sector, projecting continued pressure on wages [59] Other Important Information - The annual dividend is expected to remain at $1.32 per share, representing a 6.1% yield [17] - The company raised approximately $25 million through share plans and has reduced leverage significantly [9] Q&A Session Summary Question: Supply growth trends in the next couple of years - Management indicated that supply growth is expected to remain in the low 2% range, with some upward pressure in 2019 and 2020 [46][48] Question: Details on the Dallas acquisition - The Courtyard Dallas is expected to contribute approximately $3.1 million of EBITDA in 2019, ramping up in 2020 [50] Question: Acquisitions and underwriting deals - The company is still underwriting deals and is focusing on value-add opportunities due to the current market conditions [56][58] Question: Impact of loyalty program merger and data breach - Management stated that there has been no significant impact from the loyalty program merger or data breach on bookings or revenues [76]