Chatham Lodging Trust Results

Chatham Lodging Trust Beats Expectations for Third Quarter 2017

Chatham Lodging Trust

Chatham Lodging Trust (NYSE: CLDT), a lodging real estate investment trust (REIT) that invests in upscale, extended-stay hotels and premium-branded, select-service hotels and owns 134 hotels wholly or through joint ventures, today announced results for the third quarter ended September 30, 2017. The company also provided its initial guidance for the 2017 fourth quarter and updated its full-year guidance.

Third Quarter 2017 Key Metrics

  • Portfolio Revenue per Available Room (RevPAR) - Increased 1.0 percent, at the upper end of guidance, to $146, compared to the 2016 third quarter, for Chatham’s 39, wholly owned hotels. Average daily rate (ADR) improved 0.5 percent to $173 and occupancy grew 0.5 percent to 85 percent.
    • RevPAR improved 0.2 percent excluding four hotels in Houston where RevPAR rose 13.0 percent.
  • Net Income - Rose to $14.5 million versus $13.4 million in the 2016 third quarter. Net income per diluted share improved to $0.36 versus $0.35 in the 2016 third quarter.
  • Adjusted EBITDA - Was off marginally, $0.1 million, or 0.1 percent, to $37.2 million.
  • Adjusted FFO - Decreased $0.5 million or 1.7 percent to $27.0 million versus $27.5 million in the 2016 third quarter. Adjusted FFO per diluted share was $0.68 versus $0.71 in the 2016 third quarter, compared to the company’s guidance of $0.63-$0.67 per share.
  • Operating Margins - Slipped 130 basis points, but remained a strong 49.3 percent. Comparable hotel EBITDA margins were off 100 basis points to 42.7 percent.

Consolidated Financial Results

The following is a summary of the consolidated financial results for the three and nine months ended September 30, 2017. RevPAR, ADR and occupancy for 2017 and 2016 are based on hotels owned as of September 30, 2017 ($ in millions, except per share, RevPAR, ADR, occupancy and margins):

  Three Months Ended   Nine Months Ended
September 30, September 30,
2017   2016 2017   2016
Net income $14.5 $13.4

$24.2

$29.0

Diluted net income per common share $0.36 $0.35 $0.61 $0.74
RevPAR $146 $145 $137 $136
ADR $173 $172 $173 $169
Occupancy 85% 84% 80% 81%
Adjusted EBITDA $37.2 $37.3 $100.4 $101.7
GOP Margin 49.3% 50.6% 48.6% 49.4%
Hotel EBITDA Margin 42.7% 43.7% 41.7% 42.5%
AFFO $27.0 $27.5 $70.3 $72.0
AFFO per diluted share $0.68 $0.71 $1.79 $1.87
Dividends per share $0.33 $0.33 $0.99 $0.97

Operating Results

“Our third quarter results performed well and were bolstered further by the additional demand created by the devastating hurricanes, Harvey and Irma. Four hotels in Houston and our hotels in Fort Lauderdale and Orlando, Fla., had strong improvements,” said Jeffrey H. Fisher, Chatham’s president and chief executive officer. “Even though we had to evacuate our Residence Inn Fort Lauderdale and our SpringHill Suites Savannah for a few days, these hotels held up very well due to their high-quality construction, as well as the extraordinary efforts of our staff on the ground. Thankfully, our hotels suffered little damage.”

Third quarter RevPAR performance for certain key markets:

  • Silicon Valley RevPAR rose 0.5 percent to $202 driven primarily by an increase in occupancy.
  • RevPAR at Chatham’s three San Diego hotels advanced 2.6 percent.
  • Four Houston hotels experienced a RevPAR gain of 13.0 percent due to increased demand related to Hurricane Harvey.
  • Two Los Angeles area hotels experienced a RevPAR decline of 2.1 percent.
  • RevPAR at the company’s three Boston hotels decreased 0.9 percent.
  • Our two Denver hotels saw RevPAR grow 0.6 percent.

“We outperformed our EBITDA and FFO expectations as same-store hotel EBITDA margins beat the upper-end of our guidance range by 20 basis points and, although down year-over-year, remain the highest in the industry at a very strong 42.7 percent. We are dedicating resources to ensure we remain hyper-focused on expense controls which helps us minimize margin declines while RevPAR growth is close to zero and operating expenses, primarily labor related, are rising.

“We expect our Houston area hotels to generate strong RevPAR growth for the remainder of 2017, and, combined with better than expected margin performance, we are confident in raising our outlook for the remainder of the year,” Fisher concluded.

Strategic Recycling Program and Hotel Investments

Chatham previously indicated that it had entered into separate agreements to sell two of its hotels for gross proceeds of approximately $80 million. The sales agreements called for both hotels’ mortgages to be assumed by the buyers. The $47 million sale of one hotel was terminated recently as the servicer did not approve the loan assumption. The remaining $33 million sale of a hotel is still active and pending. Closing of the sale is subject to many conditions.

Chatham is actively pursuing acquisitions and intends to use the proceeds from any asset sales to acquire hotels. In September, the company acquired the 131-room Hilton Garden Inn Portsmouth Downtown in N.H., for $43.5 million, or approximately $332,000 per room. This property is located in the absolute center of downtown Portsmouth, a beautiful, historic, waterfront community. The hotel enjoys the best location within downtown Portsmouth and benefits from strong, diversified demand, including leisure and corporate, as well as government business related to a thriving naval yard. Opened in June 2006, the Hilton Garden Inn Portsmouth Downtown was fully renovated within the past two years and will require no major capital investment until 2022. The hotel was constructed with a timeless design that adheres to strict local requirements and aligns well with the city’s historic charm.

“As Jeff stated earlier this year, we continue to seek ways to deliver incremental value through opportunistic capital recycling and the reinvestment of those proceeds into hotels in higher growth markets with higher cash-on-cash returns and limited CAPEX requirements,” highlighted Dennis Craven, Chatham’s chief operating officer. “Although one of the sales fell through, we continue to pursue further asset sales, as well as other acquisitions and ground-up developments, including the Silicon Valley redevelopments. We expect these transactions will be accretive to our net asset value and FFO per share.”

During the third quarter, the company completed the renovation of the Homewood Suites Maitland, Fla. and commenced the extensive renovations of the Homewood Suites hotels in Bloomington, Minn. and Brentwood, Tenn. The company expects to complete those renovations during the fourth quarter. The company invested approximately $21.4 million in hotel upgrades year-to-date.

Capital Markets & Capital Structure

As of September 30, 2017, the company had net debt of $593.2 million (total consolidated debt less unrestricted cash). Total debt outstanding was $604.5 million at an average interest rate of 4.6 percent, comprised of $529.5 million of fixed-rate mortgage debt at an average interest rate of 4.6 percent and $75.0 million outstanding on the company’s $250 million senior unsecured revolving credit facility, which currently carries a 4.0 percent interest rate.

Chatham’s leverage ratio was approximately 39.5 percent at September 30, 2017, based on the ratio of the company’s net debt to hotel investments at cost. The weighted average maturity date for Chatham’s fixed-rate debt is February 2024 with the earliest maturity in 2021. As of September 30, 2017, Chatham’s proportionate share of joint venture debt and unrestricted cash was $165.4 million and $3.1 million, respectively.

On September 30, 2017, as defined in the company’s credit agreement, Chatham’s fixed charge coverage ratio, including its interest in the two joint ventures with Colony NorthStar, was 3.3 times, and total net debt to trailing 12-month corporate EBITDA was 6.0 times. Excluding its interest in the two joint ventures, Chatham’s fixed charge coverage ratio was 3.5 times, and net debt to trailing 12-month corporate EBITDA was 5.4 times.

During the third quarter, Chatham sold 0.6 million shares under its at-the-market (“ATM”) and direct stock purchase (“DSPP”) programs at a weighted average price of $20.92 per share.

Joint Venture Investments

During the quarter, the Innkeepers and Inland joint ventures contributed Adjusted EBITDA and Adjusted FFO of approximately $4.9 million and $2.9 million, respectively. Adjusted EBITDA was within the company’s guidance range and adjusted FFO from the joint ventures finished $0.1 million above guidance for the quarter. Year-over-year, Adjusted EBITDA and Adjusted FFO contributed by the joint ventures was down $0.1 million and $0.2 million, respectively.

Chatham received distributions from its joint venture investments of $1.3 million during the 2017 third quarter.

Dividend

Chatham currently pays a monthly dividend of $0.11 per common share.

2017 Guidance

The company updated and raised its full-year guidance based on its third quarter outperformance, as well as an improved outlook for the balance of the year and provided initial guidance for the 2017 fourth quarter:

  • Industrywide RevPAR growth of 0 to 3 percent in 2017
  • Renovations at the following hotels:
    • Homewood Suites in Bloomington, Minn., and Brentwood, Tenn., starting in the third quarter, with expected completion in the fourth quarter
    • Residence Inn San Diego Mission Valley, beginning in the fourth quarter with a targeted completion date in the 2018 first quarter
  • Pending dispositions and acquisitions are not included
  • No additional acquisitions, dispositions, debt or equity issuance
      Q4 2017     2017 Forecast
RevPAR     $117-$119     $132-$133
RevPAR growth     -1.0%-1.0%     0.3%-0.8%
Total hotel revenue     $67.0-$68.3 M     $293.0-$294.3 M
Net income     $1.0-$2.0 M     $25.2-$26.2 M
Net income per diluted share     $0.02-$0.05     $0.63-$0.66
Adjusted EBITDA     $25.0-$26.0 M     $125.6-$126.6 M
Adjusted FFO     $14.5-$15.5 M     $85.0-$86.0 M
Adjusted FFO per diluted share     $0.35-$0.38     $2.14-$2.17
Hotel EBITDA margins     36.0%-36.5%     40.4%-40.7%
Corporate cash administrative expenses     $2.2 M     $9.1 M
Corporate non-cash administrative expenses     $1.0 M     $3.8 M
Interest expense (excluding fee amortization)     $7.1 M     $27.5 M
Non-cash amortization of deferred fees     $0.3 M     $0.9 M
Income taxes     $0.0 M     $0.3 M
Chatham’s share of JV EBITDA     $3.1-$3.3 M     $16.0-$16.2 M
Chatham’s share of JV FFO     $1.0-$1.2 M     $7.9-$8.1 M
Weighted average shares/units outstanding     41.0 M     39.7 M
    Funds from operations (FFO), Adjusted FFO (AFFO), EBITDA and Adjusted EBITDA are non-GAAP financial measures within the meaning of the rules of the Securities and Exchange Commission. See the discussion included in this press release for information regarding these non-GAAP financial measures.

About Chatham Lodging Trust

Chatham Lodging Trust is a self-advised, publicly-traded real estate investment trust focused primarily on investing in upscale, extended-stay hotels and premium-branded, select-service hotels. The company owns interests in 134 hotels totaling 18,341 rooms/suites, comprised of 39 properties it wholly owns with an aggregate of 5,843 rooms/suites in 15 states and the District of Columbia and a minority investment in two joint ventures that own 95 hotels with an aggregate of 12,498 rooms/suites.

CHATHAM LODGING TRUST
Consolidated Balance Sheets
(In thousands, except share and per share data)
   
September 30, December 31,
2017 2016
(unaudited)
Assets:
Investment in hotel properties, net $ 1,263,183 $ 1,233,094
Cash and cash equivalents 11,282 12,118
Restricted cash 27,693 25,083
Investment in unconsolidated real estate entities 25,448 20,424
Hotel receivables (net of allowance for doubtful accounts of $249 and $155, respectively) 7,691 4,389
Deferred costs, net 4,882 4,642
Prepaid expenses and other assets 4,350 2,778
Deferred tax asset, net   426  
Total assets $ 1,344,529   $ 1,302,954  
Liabilities and Equity:
Mortgage debt, net $ 527,144 $ 530,323
Revolving credit facility 75,000 52,500
Accounts payable and accrued expenses 32,763 27,782
Distributions and losses in excess of investments of unconsolidated real estate entities 5,975 6,017
Distributions payable 5,217   4,742  
Total liabilities 646,099   621,364  
Commitments and contingencies
Equity:
Shareholders’ Equity:
Preferred shares, $0.01 par value, 100,000,000 shares authorized and unissued at September 30, 2017 and December 31, 2016
Common shares, $0.01 par value, 500,000,000 shares authorized; 39,839,476 and 38,367,014 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively 395 380
Additional paid-in capital 752,148 722,019
Retained earnings (distributions in excess of retained earnings) (60,097 ) (45,657 )
Total shareholders’ equity 692,446   676,742  
Noncontrolling interests:
Noncontrolling interest in Operating Partnership 5,984   4,848  
Total equity 698,430   681,590  
Total liabilities and equity $ 1,344,529   $ 1,302,954  
CHATHAM LODGING TRUST
Consolidated Statements of Operations
(In thousands, except share and per share data)
(unaudited)
   
For the three months ended For the nine months ended
September 30, September 30,
2017   2016 2017   2016
Revenue:
Room $ 76,221 $ 74,736 $ 213,415 $ 211,438
Food and beverage 1,378 1,494 4,353 4,728
Other 3,052 2,699 8,465 7,689
Cost reimbursements from unconsolidated real estate entities 753   804   2,302   2,728  
Total revenue 81,404   79,733   228,535   226,583  
Expenses:
Hotel operating expenses:
Room 15,618 15,068 44,147 43,453
Food and beverage 1,307 1,280 3,770 3,703
Telephone 410 449 1,205 1,300
Other hotel operating 737 563 2,047 1,790
General and administrative 5,906 5,652 17,534 16,848
Franchise and marketing fees 6,366 6,157 17,758 17,293
Advertising and promotions 1,353 1,203 3,955 3,899
Utilities 2,708 2,684 7,431 7,301
Repairs and maintenance 3,467 3,084 9,898 9,443
Management fees 2,693 2,558 7,511 7,171
Insurance 297     318   925     993  
Total hotel operating expenses 40,862 39,016 116,181 113,194
Depreciation and amortization 10,944 11,997 34,662 36,753
Impairment loss 6,663
Property taxes, ground rent and insurance 5,349 5,417 15,710 15,454
General and administrative 3,151 2,992 9,706 9,076
Hotel property acquisition costs and other charges (15 ) 49 359
Reimbursed costs from unconsolidated real estate entities 753   804   2,302   2,728  
Total operating expenses 61,044   60,275   185,224   177,564  
Operating income 20,360 19,458 43,311 49,019
Interest and other income 9 7 27 43
Interest expense, including amortization of deferred fees (7,065 ) (7,082 ) (20,830 ) (21,211 )
Loss on early extinguishment of debt (4 )
Income from unconsolidated real estate entities 1,189 1,051 2,031 1,346
Loss on sale from unconsolidated real estate entities       (8 )
Income before income tax benefit (expense) 14,493 13,434 24,539 29,185
Income tax benefit (expense)   12   (317 ) (167 )
Net income 14,493 13,446 24,222 29,018
Net income attributable to noncontrolling interests (101 ) (91 ) (167 ) (195 )
Net income attributable to common shareholders $ 14,392   $ 13,355   $ 24,055   $ 28,823  
 
Income per Common Share - Basic:
Net income attributable to common shareholders $ 0.36   $ 0.35   0.62   $ 0.75  
Income per Common Share - Diluted:
Net income attributable to common shareholders $ 0.36   0.35   $ 0.61   0.74  
Weighted average number of common shares outstanding:
Basic 39,298,974 38,307,382 38,731,900 38,293,704
Diluted 39,550,494 38,567,462 38,960,455 38,520,689
Distributions declared per common share: $ 0.33 $ 0.33 $ 0.99 $ 0.97
CHATHAM LODGING TRUST
FFO and EBITDA
(In thousands, except share and per share data)
 
For the three months ended For the nine months ended
September 30, September 30,
  2017       2016     2017     2016
 
Funds From Operations ("FFO"):
Net income $ 14,493 $ 13,446 $ 24,222 $ 29,018
Loss on sale from unconsolidated real estate entities - - - 8
Depreciation 10,890 11,944 34,501 36,593
Impairment loss - - 6,663 -
Adjustments for unconsolidated real estate entity items 1,668 2,052 4,902 6,028
       
FFO attributable to common share and unit holders 27,051 27,442 70,288 71,647
 
Hotel property acquisition costs and other charges (15 ) 49 - 359
Loss on early extinguishment of debt - - - 4
Adjustments for unconsolidated real estate entity items   -     2     15   26
Adjusted FFO attributable to common share and unit holders $ 27,036   $ 27,493   $ 70,303 $ 72,036
 
Weighted average number of common shares and units
Basic 39,594,166 38,565,157 39,006,396 38,551,479
Diluted 39,845,686 38,825,237 39,234,951 38,778,464
 
 
For the three months ended For the nine months ended
September 30, September 30,
  2017     2016     2017   2016
Earnings Before Interest, Taxes,
Depreciation and Amortization ("EBITDA"):
Net income $ 14,493 $ 13,446 $ 24,222 $ 29,018
Interest expense 7,065 7,082 20,830 21,211
Income tax (benefit) expense - (12 ) 317 167
Depreciation and amortization 10,944 11,997 34,662 36,753
Adjustments for unconsolidated real estate entity items 3,708 3,934 10,844 11,884
       
EBITDA 36,210 36,447 90,875 99,033
 
Hotel property acquisition costs and other charges (15 ) 49 - 359
Impairment loss - - 6,663 -
Loss on early extinguishment of debt - - - 4
Adjustments for unconsolidated real estate entity items 13 4 55 40
Loss on sale from unconsolidated real estate entities - - - 8
Share based compensation 999 759 2,785 2,256
             
Adjusted EBITDA   $ 37,207   $ 37,259   $ 100,378 $ 101,700
CHATHAM LODGING TRUST
ADJUSTED HOTEL EBITDA
(In thousands, except share and per share data)
     
For the three months ended For the nine months ended
September 30,   September 30,
2017   2016   2017   2016
 
Net Income $ 14,493 $ 13,446 $ 24,222 $ 29,018
Add: Interest expense 7,065 7,082 20,830 21,211
Income tax expense 317 167
Depreciation and amortization 10,944 11,997 34,662 36,753
Corporate general and administrative 3,151 2,992 9,706 9,076
Hotel property acquisition costs and other charges 49 359

Impairment loss

6,663

Loss on early extinguishment of debt 4

Loss on sale from unconsolidated real estate entities

8
Less: Interest and other income (9 ) (7 ) (27 ) (43 )
Hotel property acquisition costs and other charges (15 )
Income tax benefit (12 )
Income from unconsolidated real estate entities $ (1,189 ) $ (1,051 ) $ (2,031 ) $ (1,346 )
Adjusted Hotel EBITDA $ 34,440   $ 34,496   $ 94,342   $ 95,207  



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