Chatham Lodging Trust Results

Chatham Lodging Trust Announces Second Quarter 2018 Results

Portfolio Revenue per Available Room (RevPAR) - Increased 0.8 percent to $143, compared to the 2017 second quarter, for Chatham’s 40, wholly owned hotels. Average daily rate (ADR) improved 0.6 percent to $172, and occupancy also rose 0.2 percent to 83 percent.

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 135 hotels wholly or through joint ventures, today announced results for the second quarter ended June 30, 2018. The company also provided updated guidance for 2018.

Second Quarter 2018 Key Metrics

 

  • Portfolio Revenue per Available Room (RevPAR) - Increased 0.8 percent to $143, compared to the 2017 second quarter, for Chatham’s 40, wholly owned hotels. Average daily rate (ADR) improved 0.6 percent to $172, and occupancy also rose 0.2 percent to 83 percent.
  • Net Income - Improved $8.4 million to $13.5 million. Net income per diluted share was $0.29 versus $0.13 in the 2017 second quarter.
  • Adjusted EBITDA - Advanced $2.5 million to $37.6 million, at the upper end of its guidance.
  • Adjusted FFO - Rose $2.2 million, to $27.4 million, versus $25.2 million in the 2017 second quarter. Adjusted FFO per diluted share was $0.59, above consensus and compared to guidance of $0.56-$0.59 per share.
  • Operating Margins - Gross operating profit margins declined 50 basis points to 48.9 percent. Hotel EBITDA margins were off 70 basis points to 41.5 percent, within its range of guidance.
  • Balance Sheet - Continued to de-lever, paying down $2.8 million of net debt in the quarter and reducing leverage to 33 percent.

Consolidated Financial Results

 

The following is a summary of the consolidated financial results for the three and six months ended June 30, 2018. RevPAR, ADR and occupancy for 2018 and 2017 are based on hotels owned as of June 30, 2018 ($ in millions, except per share, RevPAR, ADR, occupancy and margins):

 

        Three Months Ended       Six Months Ended
June 30, June 30,
2018   2017 2018   2017
Net income $13.5 $5.1 $16.4 $9.7
Diluted net income per common share $0.29 $0.13 $0.35 $0.25
RevPAR $143 $142 $133 $134
ADR $172 $171 $167 $167
Occupancy 83% 83% 79% 80%
Adjusted EBITDA $37.6 $35.1 $64.0 $63.2
GOP Margin 48.9% 49.4% 46.8% 48.3%
Hotel EBITDA Margin 41.5% 42.2% 39.1% 41.1%
AFFO $27.4 $25.2 $43.9 $43.3
AFFO per diluted share $0.59 $0.65 $0.95 $1.11
Dividends per share $0.33 $0.33 $0.66 $0.66
 

 

Operating Results

 

“Our second quarter results finished at the upper end of our FFO per share guidance expectations, driven by a combination of RevPAR growth above the midpoint of our guidance and strong performance by our joint venture portfolios,” said Jeffrey H. Fisher, Chatham’s president and chief executive officer. “In the 2018 second quarter, RevPAR at our joint venture hotels improved 3.3 percent, benefitting from the significant capital invested into the Inland portfolio in 2016 and 2017. Within the Chatham portfolio, as I mentioned last quarter, we're seeing some improving market conditions across the portfolio, especially in markets that have absorbed most of the competitive new supply. In fact, approximately one-third of our hotels saw RevPAR rise more than 5 percent, and approximately one-half of our portfolio saw RevPAR rise more than 3 percent.”

 

Second quarter RevPAR performance for certain of Chatham’s key markets:

 

  • Florida hotels saw RevPAR advanced 10.2 percent.
  • Silicon Valley RevPAR rose 0.5 percent to $190.
  • RevPAR jumped 9.6 percent at its four Houston hotels.
  • Two Los Angeles-area hotels experienced a RevPAR increase of 3.5 percent.
  • RevPAR at the company’s three Washington D.C. hotels increased 3.6 percent.

“Markets for us where RevPAR grew more than 5 percent during the quarter were Marina Del Rey and downtown San Diego, Calif.; downtown Washington D.C.; Farmington, Conn.; Maitland, Fla.; Holtsville, New Rochelle and White Plains, NY.; Washington, Pa.; and, finally, San Antonio, Texas,” Fisher commented. “RevPAR growth remains strong thus far in the third quarter, with July RevPAR up approximately 3 percent. However, I should remind everyone that we will face tough comps in September as we will be comparing to strong results in Houston and Florida due to hurricane related business in 2017.”

 

Gross operating profit margins were down 50 basis points compared to the 2017 second quarter. The primary reason for the margin decline was attributable to payroll and benefit costs that increased 3.5 percent and reduced margins by 30 basis points. Small increases in repair and maintenance costs were offset by reduced utilities costs and travel agency commissions.

 

“With modest RevPAR growth, as well as the pressure from rising labor costs adversely impacting margins, it is notable that we were able to minimize margin erosion by only 50 basis points,” stated Dennis Craven, Chatham’s chief operating officer. “Our ability to work with Island Hospitality to enhance room revenue, implement other revenue initiatives and aggressively monitor other controllable costs was vital to our performance in the quarter and will benefit us moving forward. Rising labor costs remain the primary contributing factor to our margin erosion, and we are hyper-focused on being as efficient as possible in our labor model.”

 

Strategic Capital Recycling Program and Hotel Investments

 

In November 2017, the company contracted to acquire the under-construction, 96-room Residence Inn Charleston Summerville, S.C., for $21 million. The hotel sits adjacent to the 96-room Courtyard by Marriott that Chatham acquired in the same month. These hotels are located in Nexton, an emerging, mixed-use community in the heart of a rapidly expanding area just outside of Charleston. The hotels will be the highest quality and closest accommodations to Volvo’s second American factory which is expected to open later this year. Volvo already announced plans for a second factory on its nearby campus. Chatham expects to close on the acquisition by August 31, 2018. RevPAR at the company’s Courtyard by Marriott Charleston Summerville, S.C., in the 2018 second quarter was up approximately four percent.

 

During the second quarter, the company substantially completed the renovations of the Homewood Suites Billerica, Mass., and Hyatt Place Pittsburgh. The company commenced the renovation of the Residence Inn Mountain View, Calif., in the second quarter and expects to complete those upgrades during the 2018 third quarter. The company will commence the renovation of the Homewood Suites Dallas, Texas, in the third quarter and expects to complete those improvements in the fourth quarter. Chatham intends to invest approximately $25 million renovating and upgrading its hotels in 2018.

 

Capital Markets & Capital Structure

 

As of June 30, 2018, the company had net debt of $525.0 million (total consolidated debt less unrestricted cash). Total debt outstanding was $533.0 million at an average interest rate of 4.6 percent, comprised of $506.0 million of fixed-rate mortgage debt at an average interest rate of 4.7 percent and $27.0 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 33.3 percent on June 30, 2018, 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 June 30, 2018, Chatham’s proportionate share of joint venture debt and unrestricted cash was $165.4 million and $2.5 million, respectively. At Chatham’s current leverage level, the borrowing cost under the new facility is LIBOR plus 1.65 percent.

 

On June 30, 2018, 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 5.4 times. Excluding its interest in the two joint ventures, Chatham’s fixed charge coverage ratio was 3.6 times, and net debt to trailing 12-month corporate EBITDA was 4.7 times.

 

“During the quarter, we reduced our net debt by $2.8 million, bringing the year-to-date reduction to $6.2 million, and we have also reduced our leverage ratio to 33 percent,” remarked Jeremy Wegner, Chatham’s chief financial officer. “Our cash flow is strong, including distributions from our joint ventures, and we will continue to reduce our net debt until we deploy capital into more accretive hotel investments.”

 

Joint Venture Investments

 

During the 2018 second quarter, the Innkeepers and Inland joint ventures contributed Adjusted EBITDA and Adjusted FFO of approximately $5.1 million and $2.8 million, respectively, compared to 2017 second quarter Adjusted EBITDA and FFO of approximately $4.8 million and $2.7 million, respectively. Both Adjusted EBITDA and Adjusted FFO were $0.1 million above the company’s previous guidance for the quarter.

 

Chatham received distributions from its joint venture investments of $1.8 million during the 2018 second quarter.

 

Dividend

 

Chatham currently pays a monthly dividend of $0.11 per common share. Chatham’s 2018 dividend per share of $1.32 represents approximately 70 percent of its 2018 adjusted FFO per share, based on the midpoint of its guidance for 2018.

 

2018 Guidance

 

The company provides guidance, but does not undertake to update it for any developments in its business. Achievement of the results is subject to the risks disclosed in the company’s filings with the Securities and Exchange Commission.

 

The company’s 2018 guidance reflects the following assumptions:

 

  • Industrywide RevPAR growth of 1 to 3 percent in 2018
    • Marriott International forecast North American RevPAR growth of 1 to 2 percent; Hilton Hotels & Resorts estimated North American RevPAR growth of 1 to 3 percent
    • STR projected industry RevPAR growth of 2.9 percent
  • Acquisition of the 96-room Residence Inn by Marriott Charleston Summerville, S.C., on August 31, 2018, for $21.0 million
  • Renovations commencing at the following hotels:
    • Residence Inn Mountain View, Calif., commencing in the second quarter
    • Homewood Suites Dallas, Texas, beginning in the third quarter
    • Residence Inn Sunnyvale, Calif., #1, Residence Inn Tysons Corner, Va., and the Homewood Suites Farmington, Conn., starting in the fourth quarter
  • No additional acquisitions, dispositions, debt or equity issuance
        Q3 2018         2018 Forecast
RevPAR $144 to $146 $131 to $133
RevPAR growth -1.0% to +0.5% -1.5% to 0.0%
Total hotel revenue $85.6 to $86.8 M $310.7 to $315.1 M
Net income $12.2 to $14.0 M $28.4 to $32.0 M
Net income per diluted share $0.26 to $0.30 $0.61 to $0.69
Adjusted EBITDA $37.6 to $39.2 M $127.1 to $130.8 M
Adjusted FFO $27.0 to $28.8 M $86.0 to $89.7 M
Adjusted FFO per diluted share $0.58 to $0.62 $1.85 to $1.93
Hotel EBITDA margins 41.0% to 42.0% 38.8% to 39.3%
Corporate cash administrative expenses $2.3 M $9.7 M
Corporate non-cash administrative expenses $1.0 M $4.2 M
Interest expense (excluding fee amortization) $6.6 M $26.1 M
Non-cash amortization of deferred fees $0.3 M $1.2 M
Income taxes $0.0 M $0.0 M
Chatham’s share of JV EBITDA $4.8 to $5.0 M $16.3 to $16.7 M
Chatham’s share of JV FFO $2.3 to $2.5 M $6.7 to $7.1 M
Weighted average shares/units outstanding 46.5 M 46.5 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 135 hotels totaling 18,519 rooms/suites, comprised of 40 properties it wholly owns with an aggregate of 6,020 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 12,499 rooms/suites.

 

CHATHAM LODGING TRUST
Consolidated Balance Sheets

(In thousands, except share and per share data)

 
  June 30,

2018

  December 31, 2017
(unaudited)
Assets:
Investment in hotel properties, net $ 1,308,571 $ 1,320,082
Cash and cash equivalents 8,077 9,333
Restricted cash 27,881 27,166
Investment in unconsolidated real estate entities 22,776 24,389
Hotel receivables (net of allowance for doubtful accounts of $234 and $200,
respectively) 6,976 4,047
Deferred costs, net 5,351 4,646
Prepaid expenses and other assets 4,439 2,523
Deferred tax asset, net 30   30  
Total assets $ 1,384,101   $ 1,392,216  
Liabilities and Equity:
Mortgage debt, net $ 504,072 $ 506,316
Revolving credit facility 27,000 32,000
Accounts payable and accrued expenses 31,358 31,692
Distributions and losses in excess of investments of unconsolidated real estate
entities 7,562 6,582
Distributions payable 5,431   5,846  
Total liabilities 575,423   582,436  
Commitments and contingencies
Equity:
Shareholders’ Equity:
Preferred shares, $0.01 par value, 100,000,000 shares authorized and unissued at
June 30, 2018 and December 31, 2017
Common shares, $0.01 par value, 500,000,000 shares authorized; 45,876,812 and
45,375,266 shares issued and outstanding at June 30, 2018 and December 31, 2017,
respectively 459 450
Additional paid-in capital 882,752 871,730
Retained earnings (distributions in excess of retained earnings) (83,079 ) (69,018 )
Total shareholders’ equity 800,132   803,162  
Noncontrolling interests:
Noncontrolling interest in Operating Partnership 8,546   6,618  
Total equity 808,678   809,780  
Total liabilities and equity $ 1,384,101   $ 1,392,216  
 

 

CHATHAM LODGING TRUST
Consolidated Statements of Operations

(In thousands, except share and per share data)

(unaudited)

 
  For the three months ended   For the six months ended
June 30, June 30,
2018   2017 2018   2017
Revenue:
Room $ 78,274 $ 72,801 $ 144,525 $ 137,194
Food and beverage 2,212 1,473 4,310 2,975
Other 3,527 2,967 6,554 5,413
Cost reimbursements from unconsolidated real estate entities 2,577   2,402   5,234   4,896  
Total revenue 86,590   79,643   160,623   150,478  
Expenses:
Hotel operating expenses:
Room 15,945 15,024 30,499 28,529
Food and beverage 1,739 1,212 3,479 2,464
Telephone 415 387 874 795
Other hotel operating 796 710 1,517 1,310
General and administrative 6,781 5,974 12,814 11,628
Franchise and marketing fees 6,575 6,089 12,100 11,391
Advertising and promotions 1,485 1,270 3,050 2,602
Utilities 2,446 2,352 5,146 4,722
Repairs and maintenance 3,637 3,179 7,261 6,431
Management fees 2,807 2,588 5,243 4,835
Insurance 339     295   672     628  
Total hotel operating expenses 42,965 39,080 82,655 75,335
Depreciation and amortization 11,921 11,714 23,958 23,718
Impairment loss 6,663 6,663
Property taxes, ground rent and insurance 6,180 5,573 11,955 10,361
General and administrative 3,547 3,287 7,169 6,555
Other charges 264 15 250 15
Reimbursed costs from unconsolidated real estate entities 2,577   2,402   5,234   4,896  
Total operating expenses 67,454   68,734   131,221   127,543  
Operating income 19,136 10,909 29,402 22,935
Interest and other income 15 6 17 18
Interest expense, including amortization of deferred fees (6,667 ) (6,773 ) (13,298 ) (13,765 )
Loss on sale of hotel property (1 ) (18 )
Income from unconsolidated real estate entities 1,004   927   250   842  
Income before income tax expense 13,487 5,069 16,353 10,030
Income tax expense       (317 )
Net income 13,487 5,069 16,353 9,713
Net income attributable to noncontrolling interests (100 ) (35 ) (120 ) (66 )
Net income attributable to common shareholders $ 13,387   $ 5,034   $ 16,233   $ 9,647  
 
Income per Common Share - Basic:
Net income attributable to common shareholders $ 0.29   $ 0.13   0.35   $ 0.25  
Income per Common Share - Diluted:
Net income attributable to common shareholders $ 0.29   0.13   $ 0.35   0.25  
Weighted average number of common shares outstanding:
Basic 45,867,625 38,525,306 45,811,023 38,443,663
Diluted 46,084,688 38,749,661 46,006,561 38,659,189
Distributions paid per common share: $ 0.33 $ 0.33 $ 0.66 $ 0.66

 

CHATHAM LODGING TRUST
FFO and EBITDA

(In thousands, except share and per share data)

 
  For the three months ended   For the six months ended
June 30, June 30,
2018   2017 2018   2017
Funds From Operations (“FFO”):
Net income $ 13,487 $ 5,069 $ 16,353 $ 9,713
Loss on sale of hotel property 1 18
Depreciation 11,863 11,661 23,841 23,611
Impairment loss 6,663 6,663
Adjustments for unconsolidated real estate entity items 1,757   1,763   3,434   3,234
FFO attributable to common share and unit holders 27,108 25,156 43,646 43,221
Other charges 264 15 250 15
Adjustments for unconsolidated real estate entity items 3   8   15   15
Adjusted FFO attributable to common share and unit holders $ 27,375   $ 25,179   $ 43,911   $ 43,251
Weighted average number of common shares and units
Basic 46,230,092 38,795,416 46,158,176 38,707,640
Diluted 46,447,156 39,019,771 46,353,714 38,923,165
 

 

  For the three months ended   For the six months ended
June 30, June 30,
2018   2017 2018   2017

Earnings Before Interest, Taxes, Depreciation and

Amortization (“EBITDA”):

Net income $ 13,487 $ 5,069 $ 16,353 $ 9,713
Interest expense 6,667 6,773 13,298 13,765
Income tax expense 317
Depreciation and amortization 11,921 11,714 23,958 23,718
Adjustments for unconsolidated real estate entity items 4,052   3,825   7,962   7,137
EBITDA 36,127 27,381 61,571 54,650
Impairment loss 6,663 6,663
Loss on sale of hotel property 1     18  
EBITDAre 36,128 34,044 61,589 61,313
Other charges 264 15 250 15
Adjustments for unconsolidated real estate entity items 25 28 14 42
Share based compensation 1,196   999   2,114   1,786
Adjusted EBITDA $ 37,613   $ 35,086   $ 63,967   $ 63,156
 

 

CHATHAM LODGING TRUST
ADJUSTED HOTEL EBITDA

(In thousands, except share and per share data)

 
                  For the three months ended   For the six months ended
June 30,   June 30,
2018   2017   2018   2017
 
Net Income $ 13,487 $ 5,069 $ 16,353 $ 9,713
Add: Interest expense 6,667 6,773 13,298 13,765
Income tax expense 317
Depreciation and amortization 11,921 11,714 23,958 23,718
Corporate general and administrative 3,547 3,287 7,169 6,555
Other charges 264 15 250 15
Impairment loss 6,663 6,663
Loss on sale of hotel property 1 18
Less: Interest and other income (15 ) (6 ) (17 ) (18 )
Income from unconsolidated real estate entities (1,004 ) (927 ) (250 ) (842 )
Adjusted Hotel EBITDA $ 34,868   $ 32,588   $ 60,779   $ 59,886  
 



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