Chatham Lodging Trust Results

Chatham Lodging Trust Announces Third Quarter 2018 Results

RevPAR Growth Stronger than Expected, 2018 Guidance Mid-Point Raised

Chatham Lodging Trust

Chatham Lodging Trust (NYSE:CLDT today announced results for the third quarter ended September 30, 2018. The company also provided updated guidance for 2018.

Third Quarter 2018 Key Metrics

  • Portfolio Revenue per Available Room (RevPAR) - Increased 1.1 percent to $147, compared to the 2017 third quarter, for Chatham’s 40, comparable wholly owned hotels (excludes the Residence Inn Charleston Summerville which opened in August 2018). Average daily rate (ADR) declined 1.0 percent to $171, while occupancy rose 2.3 percent to 86 percent.
  • Net Income - Improved $0.2 million to $14.7 million. Net income per diluted share was $0.31 versus $0.36 in the 2017 third quarter.
  • Adjusted EBITDA - Advanced $1.4 million to $38.6 million, within guidance and compared to $37.2 million in the 2017 third quarter.
  • Adjusted FFO - Rose $1.3 million, to $28.4 million, versus $27.0 million in the 2017 third quarter. Adjusted FFO per diluted share was $0.61, compared to guidance of $0.58-$0.62 per share.
  • Operating Margins - Experienced a 90-basis point decline to 48.1 percent in comparable gross operating profit margins. Comparable Hotel EBITDA margins were off 110 basis points to 41.3 percent, within guidance range of 41 to 42 percent.
  • Acquisition - Acquired the 96-room Residence Inn by Marriott Charleston Summerville, S.C., for $20.8 million, or approximately $217,000 per room.

Consolidated Financial Results

The following is a summary of the consolidated financial results for the three and nine months ended September 30, 2018. RevPAR, ADR and occupancy for 2018 and 2017 are based on the company’s 40 comparable hotels owned as of September 30, 2018 ($ in millions, except per share, RevPAR, ADR, occupancy and margins):

  Three Months Ended       Nine Months Ended

September 30,

September 30,

2018   2017

2018   2017
Net income

$14.7

$14.5

$31.0

$24.2
Diluted net income per common share

$0.31

$0.36

$0.66

$0.62
RevPAR

$147

$145

$137

$137
ADR

$171

$172

$168

$169
Occupancy

86%

84%

82%

81%
GOP Margin

47.9%

49.3%

47.2%

48.6%
Hotel EBITDA Margin

41.2%

42.7%

39.8%

41.7%
Adjusted EBITDA

$38.6

$37.2

$102.6

$100.4
AFFO

$28.4

$27.0

$72.3

$70.3
AFFO per diluted share

$0.61

$0.68

$1.56

$1.79
Dividends per share

$0.33

$0.33

$0.66

$0.66
 

Operating Results

“Our third quarter results finished at the upper end of our FFO per share guidance expectations,” said Jeffrey H. Fisher, Chatham’s president and chief executive officer. “This was driven by RevPAR growth above our guidance expectations, despite tough comparisons at our eight hotels in Houston, Dallas and Florida that benefitted from hurricane-related business in the last month of the 2017 third quarter. Continuing a trend, we see improving conditions in many of our markets.”

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

  • Silicon Valley RevPAR improved 1.5 percent to $205 at its four hotels.
  • RevPAR at its two San Diego hotels increased 2.2 percent.
  • Washington, D.C. RevPAR jumped 2.5 percent at its three hotels.
  • RevPAR at its three coastal hotels in Maine and New Hampshire advanced 4.1 percent.
  • At its four Houston hotels, RevPAR rose 2.5 percent.
  • Two Los Angeles-area hotels experienced a 3.3 percent RevPAR increase.

“We will continue to face tough RevPAR comps in the 2018 fourth quarter as we will be comparing to strong results in Texas and Florida due to hurricane-related business in 2017. We are encouraged that October RevPAR is forecast to rise approximately 3 percent,” Fisher commented.

Gross operating profit margins were down 90 basis points to 48.1 percent at its 40 comparable hotels, compared to the 2017 third quarter. The primary reason for the margin decline was increased payroll and benefit costs.

At its 37 comparable Island-managed hotels, which further excludes hotels acquired in 2018 and 2017, gross operating profit margins were down 60 basis points to 48.4 percent. On a per occupied room basis, payroll and benefits costs increased 3.6 percent in the quarter, and this reduced margins by 70 basis points.

“From a trend perspective, the increase in third quarter payroll and benefit costs was 60 basis points below the 4.2 percent increase we experienced throughout 2017. We feel the most significant increases are behind us,” said Dennis Craven, Chatham’s chief operating officer. “Additionally, on the revenue side, in collaboration with Island Hospitality, we are continuing to benefit from the implementation of other revenue initiatives and room revenue management strategies.

“On the macro level, new supply in our scale market tracts is up 2.1 percent for the last twelve months, which would be the lowest level for our portfolio since 2014. If GDP growth remains healthy, our portfolio is well-positioned to experience enhanced RevPAR growth,” Craven concluded.

Strategic Capital Recycling Program and Hotel Investments

In August 2018, Chatham acquired at opening the new 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 2017. 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 are the highest quality and closest accommodations to Volvo’s first American factory, which is expected to open later this year. Additionally, and importantly for continued economic expansion in the area, Volvo already has announced plans to expand the facility with a second production line with completion estimated in 2020.

Chatham funded the purchase using available cash and borrowings on its unsecured credit facility. The hotel is managed by Island Hospitality Management, which is 51 percent owned by Fisher. Chatham estimates it acquired the property at a year two net operating income capitalization rate of approximately eight percent.

During the third quarter, the company substantially completed the renovations of the Residence Inn Mountain View, Calif. The company commenced 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 September 30, 2018, the company had net debt of $524.5 million (total consolidated debt less unrestricted cash). Total debt outstanding was $534.8 million at an average interest rate of 4.6 percent, comprised of $504.8 million of fixed-rate mortgage debt at an average interest rate of 4.7 percent and $30.0 million outstanding on the company’s $250 million senior unsecured revolving credit facility, which currently carries a 4.2 percent interest rate.

Chatham’s leverage ratio was approximately 32.6 percent on September 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 September 30, 2018, Chatham’s proportionate share of joint venture debt and unrestricted cash was $165.4 million and $3.1 million, respectively. At Chatham’s current leverage level, the borrowing cost under the new facility is LIBOR plus 1.65 percent.

On September 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 5.3 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 $0.4 million, bringing the year-to-date reduction to $6.6 million and lowered our leverage ratio to 33 percent,” remarked Jeremy Wegner, Chatham’s chief financial officer. “Our strategy remains to effectively recycle capital and be a net acquirer of assets in 2018. Year-to-date, we have not sold any hotels and acquired one hotel for $21 million. We will continue to harvest cash flow from operations and distributions from our joint ventures to reduce our net debt until we deploy capital into more accretive hotel investments.”

Joint Venture Investments

During the 2018 third quarter, the Innkeepers and Inland joint ventures contributed Adjusted EBITDA and Adjusted FFO of approximately $4.9 million and $2.5 million, respectively, compared to 2017 third quarter Adjusted EBITDA and FFO of approximately $4.9 million and $2.9 million, respectively. Both Adjusted EBITDA and Adjusted FFO were within the company’s previous guidance for the quarter. The decrease in adjusted FFO is attributable to increased interest expense driven by rising LIBOR borrowing rates.

Chatham received distributions from its joint venture investments of $1.4 million during the 2018 third 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 69 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 2.5 to 3 percent in 2018
    • Marriott International forecast North American RevPAR growth of 2 to 3 percent; Hilton Hotels & Resorts estimated North American RevPAR growth of 2 to 3 percent
    • STR projected North American industry RevPAR growth of 2.9 percent
  • Renovations commencing during the fourth quarter at the following hotels:
    • Residence Inn Sunnyvale, Calif., #1; Residence Inn Tysons Corner, Va.; and the Homewood Suites Farmington, Conn.
  • No additional acquisitions, dispositions, debt or equity issuance

    Q4 2018     2018 Forecast
RevPAR

$119 to $121

$132 to $133
RevPAR growth

-1.0% to +1.0%

-0.5% to 0.0%
Total hotel revenue

$71.5 to $73.0 M

$313.7 to $315.2 M
Net income

$0.0 to $1.8 M

$31.2 to $33.2 M
Net income per diluted share

$0.00 to $0.04

$0.67 to $0.71
Adjusted EBITDA

$25.7 to $27.5 M

$128.3 to $130.3 M
Adjusted FFO

$15.2 to $17.0 M

$87.7 to $89.7 M
Adjusted FFO per diluted share

$0.32 to $0.36

$1.88 to $1.92
Hotel EBITDA margins

34.4% to 35.9%

38.7% to 39.1%
Corporate cash administrative expenses

$2.4 M

$10.1 M
Corporate non-cash administrative expenses

$1.0 M

$4.2 M
Interest expense (excluding fee amortization)

$6.5 M

$25.8 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

$3.3 to $3.5 M

$16.4 to $16.6 M
Chatham’s share of JV FFO

$0.7 to $0.9 M

$6.9 to $7.1 M
Weighted average shares/units outstanding

47.2 M

46.7 M
 
    Funds from operations (FFO), Adjusted FFO (AFFO), EBITDA, Adjusted EBITDA and Hotel 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 136 hotels totaling 18,616 rooms/suites, comprised of 41 properties it wholly owns with an aggregate of 6,117 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)

   

 

September 30,

2018

December 31, 2017

(unaudited)

Assets:

Investment in hotel properties, net

$ 1,328,560

$ 1,320,082

Cash and cash equivalents

10,270

9,333

Restricted cash

28,383

27,166

Investment in unconsolidated real estate entities

22,542

24,389

Hotel receivables (net of allowance for doubtful accounts of $249 and $200, respectively)

6,418

4,047

Deferred costs, net

5,126

4,646

Prepaid expenses and other assets

3,757

2,523

Deferred tax asset, net

30  

30  
Total assets

$ 1,405,086  

$ 1,392,216  
Liabilities and Equity:

Mortgage debt, net

$ 502,950

$ 506,316

Revolving credit facility

30,000

32,000

Accounts payable and accrued expenses

36,358

31,692

Distributions and losses in excess of investments of unconsolidated real estate entities

8,022

6,582

Distributions payable

5,578  

5,846  
Total liabilities

582,908  

582,436  
Commitments and contingencies

Equity:

Shareholders’ Equity:

Preferred shares, $0.01 par value, 100,000,000 shares authorized and unissued at

September 30, 2018 and December 31, 2017

 
Common shares, $0.01 par value, 500,000,000 shares authorized; 46,514,186 and

45,375,266 shares issued and outstanding at September 30, 2018 and December 31,

2017, respectively

465

450

Additional paid-in capital

896,156

871,730

Retained earnings (distributions in excess of retained earnings)

(83,758 )

(69,018 )
Total shareholders’ equity

812,863  

803,162  
Noncontrolling interests:

Noncontrolling interest in Operating Partnership

9,315  

6,618  
Total equity

822,178  

809,780  
Total liabilities and equity

$ 1,405,086  

$ 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 nine months ended

September 30,

September 30,

2018   2017

2018   2017
Revenue:

Room

$ 81,457

$ 76,221

$ 225,983

$ 213,415

Food and beverage

2,274

1,378

6,584

4,353

Other

3,731

3,052

10,285

8,465

Cost reimbursements from unconsolidated real estate entities

2,764  

2,302  

7,679  

7,198  
Total revenue

90,226  

82,953  

250,531  

233,431  
Expenses:

Hotel operating expenses:

Room

17,261

15,618

47,759

44,147

Food and beverage

1,870

1,307

5,350

3,770

Telephone

442

410

1,316

1,205

Other hotel operating

886

737

2,403

2,047

General and administrative

6,498

5,906

19,318

17,534

Franchise and marketing fees

6,863

6,366

18,962

17,758

Advertising and promotions

1,627

1,353

4,677

3,955

Utilities

3,064

2,708

8,209

7,431

Repairs and maintenance

3,783

3,467

11,043

9,898

Management fees

2,915

2,693

8,158

7,511

Insurance

340     297  

1,012     925  
Total hotel operating expenses

45,549

40,862

128,207

116,181

Depreciation and amortization

11,963

10,944

35,920

34,662

Impairment loss

6,663

Property taxes, ground rent and insurance

5,919

5,349

17,874

15,710

General and administrative

3,649

3,151

10,818

9,706

Other charges

7

(15 )

256

Reimbursed costs from unconsolidated real estate entities

2,764  

2,302  

7,679  

7,198  
Total operating expenses

69,851  

62,593  

200,754  

190,120  
Operating income

20,375

20,360

49,777

43,311

Interest and other income

335

9

352

27

Interest expense, including amortization of deferred fees

(6,708 )

(7,065 )

(20,005 )

(20,830 )
Loss on sale of hotel property

(18 )

Income from unconsolidated real estate entities

689  

1,189  

938  

2,031  
Income before income tax expense

14,691

14,493

31,044

24,539

Income tax expense

 

 

 

(317 )
Net income

14,691

14,493

31,044

24,222

Net income attributable to noncontrolling interests

(111 )

(101 )

(231 )

(167 )
Net income attributable to common shareholders

$ 14,580  

$ 14,392  

$ 30,813  

$ 24,055  

 
Income per Common Share - Basic:

Net income attributable to common shareholders

$ 0.31  

$ 0.36  

0.67  

$ 0.62  
Income per Common Share - Diluted:

Net income attributable to common shareholders

$ 0.31  

0.36  

$ 0.66  

0.61  
Weighted average number of common shares outstanding:

Basic

46,149,765

39,298,974

45,925,178

38,731,900

Diluted

46,384,969

39,550,494

46,078,558

38,960,455

Distributions paid per common share:

$ 0.33

$ 0.33

$ 0.99

$ 0.99

 
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,

2018   2017

2018   2017
Funds From Operations (“FFO”):

Net income

$ 14,691

$ 14,493

$ 31,044

$ 24,222
Loss on sale of hotel property

18

Depreciation

11,903

10,890

35,744

34,501
Impairment loss

6,663
Adjustments for unconsolidated real estate entity items

1,768  

1,668  

5,202  

4,902
FFO attributable to common share and unit holders

28,362

27,051

72,008

70,288
Other charges

7

(15 )

256

Adjustments for unconsolidated real estate entity items

1  

 

16  

15
Adjusted FFO attributable to common share and unit holders

$ 28,370  

$ 27,036  

$ 72,280  

$ 70,303
Weighted average number of common shares and units

Basic

46,512,232

39,594,166

46,277,491

39,006,396
Diluted

46,747,436

39,845,686

46,430,871

39,234,951
 

    For the three months ended   For the nine months ended

September 30,

September 30,

2018   2017

2018   2017

Earnings Before Interest, Taxes, Depreciation and

Amortization (“EBITDA”):

Net income

$ 14,691

$ 14,493

$ 31,044

$ 24,222
Interest expense

6,708

7,065

20,005

20,830
Income tax expense

317
Depreciation and amortization

11,963

10,944

35,920

34,662
Adjustments for unconsolidated real estate entity items

4,208  

3,708  

12,169  

10,844
EBITDA

37,570

36,210

99,138

90,875
Impairment loss

6,663
Loss on sale of hotel property

 

 

18  

EBITDAre

37,570

36,210

99,156

97,538
Other charges

7

(15 )

256

Adjustments for unconsolidated real estate entity items

3

13

18

55
Share based compensation

1,049  

999  

3,163  

2,785
Adjusted EBITDA

$ 38,629  

$ 37,207  

$ 102,593  

$ 100,378
 
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,

2018   2017   2018   2017

 
Net Income

$ 14,691

$ 14,493

$ 31,044

$ 24,222

Add:

Interest expense

6,708

7,065

20,005

20,830

Income tax expense

317

Depreciation and amortization

11,963

10,944

35,920

34,662

Corporate general and administrative

3,649

3,151

10,818

9,706

Other charges

7

256

Impairment loss

6,663

Loss on sale of hotel property

18

Less:

Interest and other income

(335 )

(9 )

(352 )

(27 )

Other charges

(15 )

Income from unconsolidated real estate entities

(689 )

(1,189 )

(938 )

(2,031 )

Adjusted Hotel EBITDA

$ 35,994  

$ 34,440  

$ 96,771  

$ 94,342  

 



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