Chatham Lodging Trust Results

Chatham Lodging Trust Announces Fourth Quarter 2018 Results

Beats AFFO Guidance, Introduces 2019 Guidance

Chatham Lodging Trust

Chatham Lodging Trust (NYSE:CLDT) today announced results for the fourth quarter ended December 31, 2018. The company also provided initial guidance for 2019.

On January 10, 2019, the company updated its fourth quarter guidance with respect to room revenue, revenue per available room (RevPAR) and RevPAR growth. The following chart compares actual 2018 fourth quarter results to the updated guidance:

       

Updated Q4 2018

Outlook as of 1/10/19

     

Actual Q4 2018

 
Room revenue      

$69 million

      $70 million  
RevPAR       $125       $125  
RevPAR growth       4%       4%  
 

Fourth Quarter 2018 Key Metrics

  • Portfolio Revenue per Available Room (RevPAR) - Increased 4.1 percent to $125, compared to the 2017 fourth quarter, for Chatham’s 40, comparable wholly owned hotels (excludes the Residence Inn Charleston Summerville which opened in August 2018 and the Courtyard Dallas Downtown which opened in September 2018). Average daily rate (ADR) improved 1.5 percent to $162, and occupancy rose 2.4 percent to 77 percent.
  • Net income (loss) - Declined $5.6 million to a loss of $(0.2) million compared to the 2017 fourth quarter. Net income (loss) per diluted share was $(0.01) versus $0.12.
  • Adjusted EBITDA - Advanced $2.6 million, or 9.8 percent higher than the 2017 fourth quarter, to $28.9 million, exceeding the upper end of the company’s guidance of $27.5 million.
  • Adjusted FFO - Jumped $2.4 million, or 15.2 percent, to $18.4 million, versus $16.0 million in the 2017 fourth quarter. Adjusted FFO per diluted share was $0.39, above guidance of $0.32-$0.36 per share.
  • Operating Margins - Rose 30-basis points to 44.1 percent in comparable hotel gross operating profit margins. Comparable Hotel EBITDA margins were 20 basis points higher at 36.5 percent, above the company’s guidance range.
  • Acquisition - Acquired the 167-room Courtyard by Marriott Downtown Dallas, Texas, for $49 million, or approximately $293,000 per room.

Consolidated Financial Results

The following chart summarizes the consolidated financial results for the three months and year ended December 31, 2018. RevPAR, ADR and occupancy for 2018 and 2017 are based on the company’s 40 comparable hotels owned as of December 31, 2018 ($ in millions, except per share, RevPAR, ADR, occupancy and margins):

    Three Months Ended       Year Ended
    December 31,       December 31,
    2018       2017       2018       2017
Net income (loss)   $(0.2)       $5.5       $30.9       $29.7
Diluted net income (loss) per common share   $(0.01)       $0.12       $0.66       $0.73
RevPAR   $125       $120       $134       $133
ADR   $162       $159       $167       $167
Occupancy   77%       75%       81%       80%
GOP Margin   44.0%       43.3%       46.4%       47.4%
Hotel EBITDA Margin   36.3%       35.9%       39.0%       40.3%
Adjusted EBITDA   $28.9       $26.3       $131.5       $126.7
AFFO   $18.4       $16.0       $90.7       $86.3
AFFO per diluted share   $0.39       $0.36       $1.95       $2.14
Dividends per share   $0.33       $0.33       $1.32       $1.32
 

2018 Highlights

“The lodging industry remained healthy in 2018, which was not reflected in the sell-off in lodging REIT stocks towards the end of 2018. Demand rose 2.5 percent while new supply remained in-check at 2.0 percent, enabling industry occupancy to reach an all-time high of 66.2 percent,” said Jeffrey H. Fisher, Chatham’s president and chief executive officer. “Our overall performance in 2018 was solid, especially because the company achieved a number of meaningful accomplishments:

  • refinanced its unsecured $250 million senior revolving credit facility, extending the maturity to 2023 while reducing its borrowing costs.
  • raised approximately $25 million through its share plans at almost $22 per share, using proceeds to partially fund acquisitions.
  • acquired two, high-quality hotels in Dallas, Texas, and Summerville, S.C., for approximately $70 million.
  • increased adjusted EBITDA by $4.8 million or 4 percent
  • improved adjusted FFO by $4.4 million or 5 percent
  • invested $31.4 million in capital improvements

Operating Results

“We had a knock-out fourth quarter across the board with a significant increase in RevPAR combining with higher operating margins to deliver adjusted EBITDA, AFFO and AFFO per share, well over our guidance range,” Fisher highlighted. “Our RevPAR outperformance was primarily driven by demand related to the gas explosions in the north Boston area in September that displaced many residents and propelled three of our hotels in the surrounding area to significantly outperform our expectations for the quarter. Excluding those three hotels, portfolio RevPAR growth was a healthy 1.5 percent. Even though we were the beneficiary of the one-time events in north Boston, our overall portfolio RevPAR growth also exceeded expectations.”

Chatham’s six largest markets comprise approximately 60 percent of its hotel EBITDA. Fourth quarter 2018 RevPAR performance for these key markets include:

  • Silicon Valley RevPAR improved 0.8 percent to $165 at its four hotels, despite renovations occurring at one of its Sunnyvale hotels.
  • RevPAR at its two San Diego hotels increased 33.5 percent, benefitting from a strong convention calendar, border patrol room demand and an easy comparison with Mission Valley under renovation in December 2017.
  • Washington, D.C. RevPAR declined 1.7 percent at its three hotels, influenced by on-going renovation at its Tyson’s Corner, Va. hotel.
  • RevPAR at its three coastal hotels in Maine and New Hampshire advanced 17.5 percent, driven by meaningful demand at its Exeter, New Hampshire hotel related to the north Boston gas explosions.
  • At its four Houston hotels, RevPAR dropped 13.1 percent due to difficult comparisons to the prior year attributable to demand from Hurricane Harvey.
  • Two Los Angeles-area hotels experienced a 2.3 percent RevPAR increase.

Gross operating profit margins in the 2018 fourth quarter rose 70 basis points to 44.0 percent. At its 40 comparable hotels, which excludes two hotels opened in 2018, gross operating profit margins grew 30 basis points to 44.1 percent.

At its 37 comparable Island-managed hotels, which excludes hotels acquired in 2018 and 2017, fourth quarter RevPAR jumped approximately 4.0 percent, leading to an 80 basis points increase in operating margins.

“It is certainly easier to grow margins with strong RevPAR growth like we experienced in the fourth quarter, said Dennis Craven, Chatham’s chief operating officer. “Additionally, we are working closely with Island Hospitality to augment other revenue initiatives, such as implementing or increasing parking revenue or amenity sales efforts, in order to improve margins and reduce the impact from rising payroll and benefits costs, which remains the line item with the highest exposure to increase.”

On a per occupied room basis at its 37 comparable Island-managed hotels, payroll and benefits costs, due largely to the strong economy, increased 3.4 percent in the 2018 fourth quarter, which reduced margins by 20 basis points.

“Continuing a positive trend that we have seen the last two quarters, on a per occupied room basis, the increase in fourth quarter payroll and benefit costs was 20 basis points below the 3.6 percent increase in the 2018 third quarter and 80 basis points below the 4.2 percent increase we experienced throughout 2017,” Craven stated.

Strategic Capital Recycling Program and Hotel Investments

In December 2018, Chatham acquired the recently opened 167-room Courtyard by Marriott Downtown Dallas, Texas, for $49 million, or approximately $293,000 per room. The hotel is located just two blocks from the Kay Bailey Hutchison Convention Center in the heart of downtown Dallas. The convention center, the nation’s sixth largest, boasts over two million square feet of space and generates more than one million room nights of demand annually. The center’s booking pace is up significantly looking ahead over the next five years. The Courtyard is the first new-build hotel in downtown Dallas since 2011 and has a significant competitive advantage over nearby select-service hotels which are adaptive re-use or conversion projects. Downtown Dallas has experienced a revival since 2010, with more than $5 billion of real estate investments generating a 23 percent increase in downtown population, as well as an increase in corporate office demand.

Chatham funded the purchase using available cash, including $25 million of proceeds from equity issued under its share plans in 2018 and borrowings on its unsecured credit facility. The hotel is managed by Island Hospitality Management, which is 51 percent owned by Fisher.

During the fourth quarter, the company substantially completed the renovation of the Homewood Suites Dallas, Texas. The company commenced the renovation of the Homewood Suites Farmington, Conn., the Residence Inn Sunnyvale, Calif., (#1), and Residence Inn Tysons Corner, Va., and expects to complete those improvements in the 2019 first quarter.

Capital Markets & Capital Structure

As of December 31, 2018, the company had net debt of $577.9 million (total consolidated debt less unrestricted cash). Total debt outstanding was $585.1 million at an average interest rate of 4.6 percent, comprised of $503.6 million of fixed-rate mortgage debt at an average interest rate of 4.7 percent and $81.5 million outstanding on the company’s $250 million senior unsecured revolving credit facility, which currently carries a 4.5 percent interest rate.

Chatham’s leverage ratio was approximately 34.7 percent on December 31, 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 December 31, 2018, Chatham’s proportionate share of joint venture debt and unrestricted cash was $165.4 million and $2.6 million, respectively. At Chatham’s current leverage level, the borrowing cost under the new facility is LIBOR plus 1.65 percent.

On December 31, 2018, as defined in the company’s credit agreement, Chatham’s fixed charge coverage ratio, including its interest in the two joint venture portfolios with Colony NorthStar, was 3.3 times, and total net debt to trailing 12-month corporate EBITDA was 5.6 times. Excluding its interest in the two joint ventures, Chatham’s fixed charge coverage ratio was 3.7 times, and net debt to trailing 12-month corporate EBITDA was 5.0 times.

“During 2018, we cost-effectively raised $24.5 million of equity through our share plans at a weighted average price of $21.92. Since the beginning of 2017, we generated gross proceeds of $208.2 million through the issuance of equity and the sale of a hotel and used those proceeds to acquire hotels for $201.5 million,” remarked Jeremy Wegner, Chatham’s chief financial officer. “Over this time, we have de-levered our balance sheet while also accreting value to our shareholders by adding newer, high-quality hotels.”

Joint Venture Investments

During the 2018 fourth quarter, the Innkeepers and Inland joint ventures contributed Adjusted EBITDA and Adjusted FFO of approximately $3.6 million and $1.0 million, respectively, compared to 2017 fourth quarter Adjusted EBITDA and FFO of approximately $3.4 million and $1.3 million, respectively. Adjusted EBITDA and Adjusted FFO were $0.1 million above the company’s previous guidance for the quarter. The year-over-year decrease in adjusted FFO is attributable to increased interest expense attributable to higher LIBOR borrowing rates.

Chatham received distributions from its joint venture investments of $0.8 million during the 2018 fourth quarter and $5.0 million for the year.

Dividend

Chatham currently pays a monthly dividend of $0.11 per common share. Chatham’s 2018 dividend per share of $1.32 represents approximately 68 percent of its 2018 adjusted FFO per share.

2019 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 2019 guidance reflects the following assumptions:

  • Industrywide RevPAR growth of 1 to 2.5 percent in 2019
    • Marriott International forecast North American RevPAR growth of 1 to 3 percent; Hilton Hotels & Resorts estimated systemwide RevPAR growth of 1 to 3 percent
    • STR projected industry RevPAR growth of 2.3 percent.
  • RevPAR range is adversely impacted by approximately 65 basis points due to non-recurring demand related to the Boston area gas explosions in the 2018 fourth quarter
  • Renovations commencing at the following hotels:
    • Residence Inn Dedham, Mass., and Residence Inn San Mateo, Calif., in the first quarter
    • Residence Inn Houston and the Hampton Inn and Suites Houston, Texas, during the second quarter
    • Residence Inn Fort Lauderdale, Fla., during the third quarter
    • Residence Inn Sunnyvale, Calif., #2, in the fourth quarter
  • No additional acquisitions, dispositions, debt or equity issuance

The following bridges 2018 Adjusted FFO per share to the midpoint of the company’s 2019 guidance:

           
2018 Adjusted FFO per share         $1.95
Same store EBITDA decline         <0.04>
Non-recurring Boston area room demand         <0.03>
Decline in JV FFO due primarily to financing costs         <0.03>
Other        

<0.02>

2019 Adjusted FFO per share at guidance midpoint        

$1.83

           
         

Q1 2019

     

2019 Forecast

RevPAR         $120 to $122       $132 to $135
RevPAR growth (40 comparable hotels)         -1.5% to 0.0%       -1.5% to 0.5%
Total hotel revenue         $73.3 to $74.3 M       $325.5 to $331.5 M
Net income (loss)         $(0.9) to $0.4 M       $23.5 to $28.5 M
Net income (loss) per diluted share         $(0.02) to $0.01       $0.51 to $0.61
Adjusted EBITDA         $25.1 to $26.4 M       $127.3 to $132.3 M
Adjusted FFO         $14.2 to $15.5 M       $84.1 to $89.1 M
Adjusted FFO per diluted share         $0.30 to $0.33       $1.78 to $1.88
Hotel EBITDA margins         33.9% to 34.7%       37.3% to 37.8%
Corporate cash administrative expenses         $2.5 M       $9.6 M
Corporate non-cash administrative expenses         $1.1 M       $4.8 M
Interest expense (excluding fee amortization)         $7.0 M       $26.5 M
Non-cash amortization of deferred fees         $0.3 M       $1.2 M
Chatham’s share of JV EBITDA         $2.8 to $3.1 M       $15.4 to $16.4 M
Chatham’s share of JV FFO         $0.2 to $0.5 M       $5.0 to $6.0 M
Weighted average shares/units outstanding         47.2 M       47.3 M
    Funds from operations (FFO), Adjusted FFO (AFFO), EBITDA, Adjusted EBITDA and Hotel EBITDA margins 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 137 hotels totaling 18,783 rooms/suites, comprised of 42 properties it wholly owns with an aggregate of 6,283 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 12,500 rooms/suites.

CHATHAM LODGING TRUST
Consolidated Balance Sheets

(In thousands, except share and per share data)

 
    December 31,

2018

 

December 31,

2017

    (unaudited)    
Assets:        
Investment in hotel properties, net   $ 1,373,773     $ 1,320,082  
Cash and cash equivalents   7,192     9,333  
Restricted cash   25,145     27,166  
Investment in unconsolidated real estate entities   21,545     24,389  
Hotel receivables (net of allowance for doubtful accounts of $264 and $200,            
respectively)   4,495     4,047  
Deferred costs, net   5,070     4,646  
Prepaid expenses and other assets   2,431     2,523  
Deferred tax asset, net   58     30  
Total assets   $ 1,439,709     $ 1,392,216  
Liabilities and Equity:        
Mortgage debt, net   $ 501,782     $ 506,316  
Revolving credit facility   81,500     32,000  
Accounts payable and accrued expenses   33,692     31,692  
Distributions and losses in excess of investments of unconsolidated real estate            
entities   9,650     6,582  
Distributions payable   5,667     5,846  
Total liabilities   632,291     582,436  
Commitments and contingencies        
Equity:        
Shareholders’ Equity:        
Preferred shares, $0.01 par value, 100,000,000 shares authorized and unissued at            
December 31, 2018 and 2017        
Common shares, $0.01 par value, 500,000,000 shares authorized; 46,525,652 and            
45,375,266 shares issued and outstanding at December 31, 2018 and 2017,            
respectively   465     450  
Additional paid-in capital   896,286     871,730  
Retained earnings (distributions in excess of retained earnings)   (99,285 )   (69,018 )
Total shareholders’ equity   797,466     803,162  
Noncontrolling interests:        
Noncontrolling interest in Operating Partnership   9,952     6,618  
Total equity   807,418     809,780  
Total liabilities and equity   $ 1,439,709     $ 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 years ended
        December 31,   December 31,
        2018   2017   2018   2017
Revenue:                    
Room       $ 69,914     $ 65,051     $ 295,897     $ 278,466  
Food and beverage       2,296     1,902     8,880     6,255  
Other       3,426     2,750     13,710     11,215  
Cost reimbursements from unconsolidated real estate entities       1,409     1,447     5,743     5,908  
Total revenue       77,045     71,150     324,230     301,844  
Expenses:                    
Hotel operating expenses:                    
Room       16,118     15,004     63,877     59,151  
Food and beverage       1,963     1,572     7,312     5,342  
Telephone       450     442     1,766     1,647  
Other hotel operating       894     839     3,296     2,886  
General and administrative       6,246     6,105     25,567     23,639  
Franchise and marketing fees       5,903     5,490     24,864     23,247  
Advertising and promotions       1,550     1,425     6,227     5,380  
Utilities       2,625     2,514     10,835     9,944  
Repairs and maintenance       3,667     3,419     14,710     13,317  
Management fees       2,597     2,387     10,754     9,898  
Insurance       342     303     1,354     1,228  
Total hotel operating expenses       42,355     39,500     170,562     155,679  
Depreciation and amortization       12,249     11,631     48,169     46,292  
Impairment loss                   6,663  
Property taxes, ground rent and insurance       5,804     5,205     23,678     20,916  
General and administrative       3,302     3,120     14,120     12,825  
Other charges       3,550     523     3,806     523  
Reimbursed costs from unconsolidated real estate entities       1,409     1,447     5,743     5,908  
Total operating expenses       68,669     61,426     266,078     248,806  
Operating income before gain (loss) on sale of hotel property       8,376     9,724     58,152     53,038  
Gain (loss) on sale of hotel property           3,327     (18 )   3,327  
Operating income       8,376     13,051     58,134     56,365  
Interest and other income       110     3     462     30  
Interest expense, including amortization of deferred fees       (6,873 )   (7,071 )   (26,878 )   (27,901 )
Income (loss) from unconsolidated real estate entities       (1,815 )   (448 )   (876 )   1,582  
Income (loss) before income tax benefit (expense)       (202 )   5,535     30,842     30,076  
Income tax benefit (expense)       28     (79 )   28     (396 )
Net income (loss)       (174 )   5,456     30,870     29,680  
Net income (loss) attributable to noncontrolling interests       2     (35 )   (229 )   (202 )
Net income (loss) attributable to common shareholders       $ (172 )   $ 5,421     $ 30,641     $ 29,478  
                     
Income (loss) per Common Share - Basic:                    
Net income (loss) attributable to common shareholders       $ (0.01 )   $ 0.12     0.66     $ 0.73  
Income (loss) per Common Share - Diluted:                    
Net income (loss) attributable to common shareholders       $ (0.01 )   0.12     $ 0.66     0.73  
Weighted average number of common shares outstanding:                    
Basic       46,513,688     43,205,683     46,073,515     39,859,143  
Diluted       46,765,797     43,522,022     46,243,660     40,112,266  
Distributions paid per common share:       $ 0.33     $ 0.33     $ 1.32     $ 1.32  
 
CHATHAM LODGING TRUST
FFO and EBITDA

(In thousands, except share and per share data)

         
    For the three months ended   For the years ended
    December 31,   December 31,
    2018   2017   2018   2017
Funds From Operations (“FFO”):                
Net income (loss)   $ (174 )   $ 5,456     $ 30,870     $ 29,680  
Loss (gain) on sale of hotel property       (3,327 )   18     (3,327 )
Depreciation   12,188     11,559     47,932     46,060  
Impairment loss               6,663  
Adjustments for unconsolidated real estate entity items   1,790     1,698     6,992     6,600  
FFO attributable to common share and unit holders   13,804     15,386     85,812     85,676  
Other charges   3,550     523     3,806     523  
Adjustments for unconsolidated real estate entity items   1,062     80     1,078     96  
Adjusted FFO attributable to common share and unit holders   $ 18,416     $ 15,989     $ 90,696     $ 86,295  
Weighted average number of common shares and units                
Basic   46,876,155     43,500,875     46,428,387     40,138,856  
Diluted   47,128,264     43,817,214     46,598,532     40,391,978  
                         
    For the three months ended   For the years ended
    December 31,   December 31,
    2018   2017   2018   2017

Earnings Before Interest, Taxes, Depreciation and

Amortization (“EBITDA”):

               
Net income (loss)   $ (174 )   $ 5,456     $ 30,870     $ 29,680  
Interest expense   6,873     7,071     26,878     27,901  
Income tax (benefit) expense   (28 )   79     (28 )   396  
Depreciation and amortization   12,249     11,631     48,169     46,292  
Adjustments for unconsolidated real estate entity items   4,327     3,805     16,495     14,650  
EBITDA   23,247     28,042     122,384     118,919  
Impairment loss               6,663  
Loss (gain) on sale of hotel property       (3,327 )   18     (3,327 )
EBITDAre   23,247     24,715     122,402     122,255  
Other charges   3,550     523     3,806     523  
Adjustments for unconsolidated real estate entity items   1,063     82     1,081     136  
Share based compensation   1,050     999     4,210     3,784  
Adjusted EBITDA   $ 28,910     $ 26,319     $ 131,499     $ 126,698  
 
CHATHAM LODGING TRUST
ADJUSTED HOTEL EBITDA

(In thousands, except share and per share data)

     
        For the three months ended   For the years ended
        December 31,   December 31,
        2018   2017   2018   2017
                     
Net Income       $ (174 )   $ 5,456     $ 30,870     $ 29,680  
Add:   Interest expense   6,873     7,071     26,878     27,901  
    Income tax expense       79         396  
    Depreciation and amortization   12,249     11,631     48,169     46,292  
    Corporate general and administrative   3,302     3,120     14,120     12,825  
    Other charges   3,550     523     3,806     523  
    Impairment loss               6,663  
    Loss from unconsolidated real estate entities   1,815     448     876      
    Loss on sale of hotel property           18      
Less:   Interest and other income   (110 )   (3 )   (462 )   (30 )
    Gain on sale of hotel property       (3,327 )       (3,327 )
    Income from unconsolidated real estate entities               (1,582 )
    Income tax benefit   $ (28 )   $     $ (28 )   $  
    Adjusted Hotel EBITDA   $ 27,477     $ 24,998     $ 124,247     $ 119,341  



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